1 

A— ^ 

0  ^ 
0  -^-^ 

•  c: 

:  o 
;  en 

-  o 

1  X 

=  33 

=  2 

UhW. 


K 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


A  SELECTION  OF  CASES 


ON  THE 


LAW   OF    INSURANCE 


EDWIN  H.  WOODRUFF 

''\ 

PROFESSOR   OF    LAW   IN   THE    COLLEGE   OF    LAW 

CORNELL   UNIVERSITY 


NEW  YORK 

BAKER,  VOORHTS  &  COMPANY 

1914 


COPYRIGHT,    1900 

By  Edwin  H.  Woodruff 


I 

^ 


TABLE  OF  CONTENTS. 


PART  I. 

"Nature  of  the  Contract. 

I.  Fire  insurance i 

II.  Marine  INSURANCE 5 

III.  Life  INSURANCE 7 

IV.  Mutual  benefit  insurance 13 

V.  Accident  insurance   15 

VI.   Fidelity  AND  GUARANTY  insurance 16 

PART  II. 

Formation  of  the  Contract. 

L  Parties 22 

a.  Infants 22 

b.  Corporations 31 

II    Insurable  interest 38 

a.  In  property , 38 

b.  In  life 50 

1.  In  one's  own  life ,.  50 

2.  In  the  life  of  another 53 

Relationship 53 

Debtor  and  creditor 60 

c.  Reinsurance 71 

III.  Form  of  the  contract 76 

a.  Oral  or  written 76 

b.  The  standard  policy 8r 

IV.  Consideration 92 

V.  Consummation  of  the  contract 93 

VI.  Reality  of  consent 104 

a.  Concealment.. 104 

b.  Representations  and  warranties 108 

I.   In  general 108 

[iii] 


IV  TABLE    OF   CONTENTS. 

2.  Promissory  representations ii8 

3.  Statutory  enactments 1 20 

4.  Effect  of  misrepresentation 123 

5.  Burden  of  proof 124 

c.   Mistake 126 

VII.   Illegality 12O 

PART  III. 

Construction  of  the  Contract. 

I.  In  general ,  131 

PART  IV. 

Terms  of  the  Contract. 

I.  In  general 135 

a.  Warranties.. 135 

b.  Premiums 135 

II.    Terms  OF  THE  FIRE  insurance  CONTRACT I42 

a.  Respecting  matters  before  loss 142 

1.  Increase  of  hazard 142 

2.  Other  insurance 146 

3.  Over-valuation 150 

4.  Ownership 152 

5.  Alienation   155 

6.  Incumbrances 158 

7.  Prohibited  articles 162 

8.  Occupancy 165 

9.  Location  of  property 1 70 

10.  Operation  of  manufactory 172 

11.  Alterations 173 

12.  Structure  on  ground  not  owned  by  insured     ...  176 

13.  Foreclosure  proceedings 176 

b.  Loss  by  fire:  proximate  cause 178 

I.    In  general 178 

Negligence 181 

Explosion 182 

Falling  building 184 

Lighting 184 

Removal  for  safety 184 

e.   Respecting  matters  after  loss 185 

1.  Proofs  of  loss 185 

2.  Magistrate's  certificate 188 


TABLE   OF   CONTENTS.  V 

3.  Examination  of  insured 190 

4.  Safe  clause 192 

5.  Arbitration 194 

6.  Pro-rating  and  contribution 198 

7.  Option  to  rebuild 203 

8    Divisibility  of  loss 205 

9.   Valued  policies 207 

10.   Limitation  of  time  to  sue 211 

III.  Terms  of  the  marine  insurance  contract 217 

1.  Attachment  of  the  risk 217 

2.  Termination  of  the  risk    219 

3.  Deviation 220 

4.  Seaworthiness 221 

5.  Perils  insured  against 228 

6.  General  average 232 

7.  Total  loss  and  abandonment 236 

8.  Particular  average  and  the  memorandum  clause 241 

9.  Sue  and  labor  clause 245 

IV.  Terms  of  the  life  insurance  contract 248 

1 .  Age 248 

2.  Health 249 

Medical  attendant 254 

Heredity 255 

Intoxicants 256 

3.  Occupation 256 

4.  Other  insurance 256 

5.  Military  or  naval  service 256 

6.  Residence  and  travel 256 

7.  Suicide 258 

8.  Poison 263 

9.  Violation  of  law 263 

10.  Incontestability 264 

11.  Non-forfeiture 268 

V.  Terms  OF  THE  accident  insurance  contract 270 

1.  What  is  an  accident   270 

2.  External  injury 277 

3.  Proximate  cause 282 

4.  Voluntary  exposure 284 

5.  Poison 287 

6.  Inhaling  gas     290 

7.  Over-exertion    294 

8.  Intoxicants 295 

9.  Occupation 299 


VI  TABLE    OF   CONTEXTS. 

10.  Violation  of  law 301 

1 1.  Total  disability 310 

12.  When  liability  fixed 314 

13.  Burden  of  proof 315 

VI.  Terms  of  the  mutual  benefit  insurance  contract....  318 

1.  In  general 318 

2.  Where  the  terms  are  to  be  found . .  318 

3.  Change  of  terms 321 

VII.  Terms  of  fidelity  and  guaranty  insurance  contract.  323 

1.  In  general 323 

2.  Fidelity  insurance 32^ 

3.  Title  guaranty  insurance 329 

PART  V. 

Limits  of  the  Contractual  Obligation. 

I.  Beneficiaries :336 

a.   Fire  insurance 336 

1.  In  general 336 

2.  Vendor  and  vendee 344 

3.  Mortgagor  and  mortgagee 349 

l>.   Life  insurance 359 

1.  Who  may  be  a  beneficiary 359 

2.  Nature  of  the  beneficiary's  interest 362 

c.   Mutual  benefit  insurance 381 

II.  Assignment 389 

c7.   Fire  insurance 389 

l>.   Marine  insurance 401 

c.  Life  insurance 402 

PART  VI. 

Breach  of  Contract  by  the  Insurer. 

I.  Remedies 410 

II.   Measure  of  damages 414 

PART  VII. 

Waiver  and  Estoppel. 

I.   In  general 4^7 

II.  Before  the  policy  is  issued 423 


TABLE   OF   CONTENTS.  Vll 

III.  After  the  policy  is  issued,  but  before  forfeiture 443 

IV.  After   forfeiture o 444 

V.   What  constitutes  WAIVER 459 

PART  VIII. 

Insurance  Agents. 

I.  Scope  of  authority , 468 

1 .  Local  agents 468 

2.  Broker 500 

3.  Adjuster 501 

4.  Sub-agents 503 

5.  Oral  waiver 512 

II.  Agent  OF  insured  OR  insurer? 517 

III.  Duty  to  principal 532 

PART  IX. 

Subrogation. 

I.  Fire  insurance 536 

1.  In  general. » 536 

2.  Tort 550 

3.  Carriers » ..,.  553 

4.  Lessor  and  lessee 560 

5.  Mortgagor  and  mortgagee  —  lienholder 566 

6.  Procedure 581 

II.  Life  and  accident  insurance 585 


TABLE  OF  CASES. 


*^f*  Where  «  is  prefixed  to  the  page  number,   the  case  is,   at  that  page^ 
digested  or  referred  to  in  a  note. 


PAGE. 

Accident  Ins.  Co.  v.  Crandal  n.  278 
-/Etna  Life  Ins.  Co.  v.  Davey  «.  297 
./Etna  Life  Ins.  Co.  v.  France  50,  248 
.^tna  Live  Stock  Ins.  Co.  v,  Olm- 

stead  n.  521 

Aitchison  v.  Lohre  245 

Alexander  v.  Ins.  Co.  443 

Allen  V.  Ins.  Co.  n.  526 

Amer.    Cent.    Ins.    Co.    v.    Roth- 
child 
Amer.    Fire    Ins.    Co. 

Co. 
Amer.  Ins.  Co.  v.  Padfield 
Amer.     Steam-Boiler    Ins.    Co.    v. 

Anderson  532 

Amicable  Soc.  v.  Bolland  n.  307 

Amer.  Surety  Co.  v.  Pauly  n.  328 

Anctil  V.  Ins.  Co.  «.  59,  «.  264 

Arff  V.  Ins.  Co.  503 

Arkansas  F.  Ins.  Co.  v.  Wilson    n.  157 


n.  172 
Manuf'g 

n.  173 
n.  170 


Babcock  v.  Ins.  Co. 

184 

Bacon  v.  Ace.  Assoc. 

n. 

277 

Baley  v.  Ins.  Co. 

158 

Barney  v.  Dudley 

414 

Baron  v.  Brummer 

n. 

406 

Benham  v.  Assur.  Co. 

n. 

120 

Bernard  v.  Ins.  Co. 

n. 

526 

Berwind  v.  Ins.  Co. 

227 

Blackburn  v.  Vigors 

n. 

107 

Blairmore  Co.  v.  Macredie 

n. 

240 

Bloom  V.  Ins.  Co. 

307, 

n. 

306 

Bloomington  M.  B.  Assoc. 

V. 

Bl 

ue 
n. 

361 

Boatmen's  Ins.  Co.  v.  Parker 

183 

Bowman  v.  Ins.  Co. 

n. 

158 

Bradbury  v.  Ins.  Assoc. 

170 

Bradley  v.  Ins.  Co. 

n. 

309 

Bradlie  v.  Ins.  Co. 
Briggs  V.  Ins.  Co. 
Brown  v.  Ins.  Co. 
Bruce  v.  Ins.  Co. 
Bumslead  v.  Ins.  Co. 
Burgess  v.  Ins.  Co. 
Burkhard  v.  Ins.  Co, 
Burkheiser  v.  Assoc. 
Burleigh  v.  Ins.  Co. 
Burritt  v.  Ins.  Co. 


PAGE. 

236 

183 

«.  232 

n.  270 

185 

220 

284 

«•  315 

«•  133 

105 


Cam  mack  v.  Lewis               n.  66,  «.  407 

Campbell  v.  Ins.  Co.  76 

Carpenter  v.  Ins.  Co.  (la.)  n.  140 

Carpenter  v.  Ins.  Co.    [N.  Y.)  n.  188 
Castellain  v.  Preston                 536,  n.  349 

Central  Bank  v.  Hume  n.  27g 

Central  City  Ins.  Co.  v.  Oates  459 

Chambers  v.  Ins.  Co.  124 

Chicago  M.  L.  A.  v.  Hunt  «.  31 

Clafiin  v.  Ins.  Co.  n.  191 

Clark  V.  Mobile  n.  39 

Clay  Ins.  Co.  v.  Huron  Co.  n.  154 

Clyburn  v.  Reynolds  n.  46 

Commonwealth  v.  Vrooman  n.  37 

Commonwealth  v.  Wetherbee  13 

Conn,  Fire  Ins.  Co.  v.  Erie  R'y  550 

Conn.  Fire  Ins.  Co.  v.  Ins.  Co.  «.  203 

Conn.  Life  Ins.  Co.  v.  Akens  «.  263 

Conn.  Life  Ins.  Co.  v.  Luchs  60 
Conn.    Life    Ins.   Co.   v.    Schaefer 

59.  "'  14 
Continental  L.  Ins.  Co.  v.  Rogers  n.  118 


Cooper  V.  Ben.  Assoc. 
Cooper  V.  Schaeffer 
Corson,  Appeal  of 
Cornwell  v.  Assoc. 
Cowles  V.  Ins.  Co. 
x] 


314 
69 

^3 

n.  287,  ft.  306 

«.  271 


TABLE   OF   CASES. 


PAGE. 

Creed  v.  Sun  Fire  Office  38 

Criichett  z'.  Ins.  Co.  492 

Cronin  v.  Ins.  Co.  56 

Cushn.an  z'.  Ins.  Co.,  >i.  151,  «.  209, ;/.  212 

Dalby  -■.  Life  Assur.  Co. 

Darrell  f.  Tibbitts 

Darrovv  z'.  Soc. 

Davis  z'.  Furniture  Co. 

Davis  v.  Ins.  Co. 

De  Lancey  v.  Ins.  Co. 

Dolan  V   Assoc. 

Dovvd  V.  Ins.  Co. 

Dryer  v.  Ins.  Co. 

Duran  v.  Ins.  Co. 

D wight  V.  Ins.  Co. 

Eadie  z'.  Slimmon 
Earley  z\  Ins.  Co. 
Eastman  v.  Assoc. 
Emerick  z'.  Coakley 
Employers'  Liability  Co. 
Equitable  Ace.  Co.  z/.  Osborn 
Erb  V.  Ins.  Co. 
Ermentrout  -'.  Ins.  Co. 
Evans  v,  Ins.  Co. 
Exchange  Bank  v.  Loh 


Fayerweather  v.  Ins.  Co.  557 

Fearn  z>.  Ward  n.  93 

Ferguson  v.  Ins.  Co.  w.  14 

Fidelity  &  Casualty  Co.  Z'.  Bank  n.  328 
Fidelity  &  Casualty  Co.  v.  Eickhoff  323 
Fidelity  &  Casually  Co.  v.  John- 
son «.  27S 
Fillmore  v.  Knights  n.  199 
Fire  Ins.  Co.  v.  Felrath  354 
Fireman's  Fund  Ins.  Co.  v.  Sholm  184 
First  Cong,  Church  v.  Ins.  Co  n.  164 
Foster  v.  Gile 
Fox  V.  Assoc. 
Franklin  Fire  Ins.  Co.  v.  Martin 


7.  "■  59 

560 

-a.-3.P7 

n 

154 

ti. 

145 

n. 

133 

71. 

249 

176 

479 

n. 

306 

n. 

300 

n. 

406 

n. 

289 

318 

n. 

406 

Merrill 

15 

■n    ;/. 

2S6 

126 

184. 

4S7 

256 

n.   66,  « 

•  71 

«. 

409 

Freeman  v.  Ace.  Assoc. 


371 
IQ7 

435 
n.  428 
282 


Gans.  V.  Ins.  Co.  n.  522 

Georgia  Home  Ins.  Co.  v  Allen  192 
German  Ins.  Co.  v.  Eddy  n.  197,  n.  212 
German  Am.  Ins.  Co.  v.  Humphrey 

ti.  162 


PAGE. 

Gibb  V.  Ins.  Co.  n.  157 

Gilligin  v.  Ins.  Co.  n.  190 

Glenn  v.  Burns  372 
Globe  Mut.  Ben.  Assoc,  Matter  of     28 

(JoL'tzman  v.  Ins.  Co.  ;/.  306 

Goodrich  «&  Hick's  Appeal  71 

Gore  V.  Assur.  Co.  510 

Gove  z'. -Ins.  Co.  181 

Gracie  v.  Ins.  Co.  n.  220 

Graitan  v.  Ins.  Co.  «.  300 

Gray  v.  Ins.  Co.  435 

Green  v.  Ins.  Co.  «.  160 

Gresham  v.  Ins.  Co.  «.  306 

Griffey  v.  Ins.  Co.  «.  iSS 

Griffin  v.  Assoc.  «.  300 

Grosvenor  z-   Ins.  Co.  349 

Guardian  Ins.  Co.  v.  Hogan  11.  59 

Hall  V.  Ins.  Co,  389 

Hamilton  v.  Ins.  Co.  194 

Hammel  v.  Ins.  Co.  «.  157 

Hann  v.  Nat.  Union  n.  252 

Harding  v.  Tovvnshend  n.  588 

Harley  z>.  Heist  362 

Harris  v.  Ins.  Co.  190 

Harris  v.  Fire  Co.  «.  209 

Harrison  v.  Pepper  44 

Hart  V.  Ins.  Co.  213 
Hartford  Ins.  Co.  z\  Davenport     «.  422 

Hartman  v.  Ins.  Co.  299 

Hastings  v.  Ins.  Co.  350 
Hatch  V.  Ins.  Co.                 n.  130,  «.  309 

Hathaway  v.  Ins.  Co.  n.  257 

Haughton  v.  Ins.  Co.  217 

Havens  :.  Ins.  Co.  «.  212 

Hebert  v.  Ins.  Co.  80 

Heffron  v.  Ins.  Co.  183 

Hellenberg  v.  Dist.  No.  I.  n.  321, 

n.  322 

Hermann  v.  Ins.  Co.  165 

Hicks  V.  Assur.  Co.  (N.  Y.)  81 

Hicks  V.  Ins.  Co.  (la.)  158 

Hitchcock  V.  Ins.  Co.  «.  401 

Hoffman  v.  Ins.  Co.  n.  140 

Holdom  V.  A.  O.  U.  W.  «.  381 

Hnlman  v.  Ins.  Co.  n.  271 

Home  Ins.  Co.  'o.  Hammang  «.  190 

Home  Ins.  Co.  v.  Myer  126 
Home  Mut.  Ins.  Co.  v.  O.   R.  &  \. 

Co.  581 


TABLE   OF   CASES. 


XI 


Honore  v.  Ins..  Co. 
Huck  V.  Ins.  Co. 


565 

184 


Illinois    Mut.   F.  Ins.  Co.  v.  Andes 

Co.  n.  76 

Illinois  Mut.  F.  Ins.  Co.  v.  Fix  396 

Imperial  Fire  Ins.  Co.  v.  Coos  Co.  w.  175 
Imperial  Fire  Ins.  Co.  v.  Dunham  152 
Insurance  Co.  v.  Bachler  n.  197 

Insurance  Co.  v.  Bennett  «.  27S 

Insurance  Co.  v.  Boon  w.  181 

Insurance  Co.  v.  Brame  585 

Insurance  Co.  v.  Butler  207 

Insurance  Co.  v.  Crunk  184 

Insurance  Co.  v.  Fogarty  241 

Insurance  Co.  v.  GriJley  255 

Insurance  Co.  v.  Leslie  «.   211 

Insurance  Co.  v.  Stinson  576 

Insurance  Co.  v.  Updegraff  n.  348 

Insurance  Co.  v.  Wilkinson  423 

Insurance  Co.  v.  Wolff  4S2 

Jauvrin  v.  Ins.  Co.  w.  145 

John  R.  Davis  Co.  v.  Ins.  Co.  500,  w.  154 

Johnson  v.  Ins.  Co.  (Mich.)  ti.  300 

Johnson  v.  Ins.  Co.  (Minn.)  22 

Kausal  v.  Ins.  Co.  517 

Keeffe  v.  Soc.  w.  295 

Keene  v.  Assoc.  n.  31S 

Kettenbach  v.  Assoc,  252,  «.  118 

Kimball  v.  Ins.  Co.  118,  n.  123 

King  V.  Ins.  Co.  n.  574 

Klein  v.  Ins.  Co.  n.  140 

Ktiapp  V.  Ins.  Co.  268 

Krumm  7'.  Ins.  Co.  «.  509 

Kyte  V.  Assur.  Co.  (144  Mass.)  477 

Kyte  v.  Assur.  Co.  (149  Mass.)  142 


Ladd  V.  Ins.  Co. 
Lamberton  v.  Ins.  Co. 
Lane  v.  Ins.  Co. 
Langdon  v.  Ins.  Co. 
Lantz  V.  Ins.  Co. 
■Laselle  v.  Ins.  Co. 
Lebanon  Ins.  Co.  v.  Leathers 
Lipman  v.  Ins.  Co. 
Loomis  V.  Ins.  Co. 
Lovelace  v.  Assoc. 
Lov  z>.  Ins.  Co. 


M,  173 

512 
18S 
359 
447 
«.  170 
172 
100 
207 
270 
155 


PAGE. 

Lucas  V.  Ins.  Co.  198 

Lynn  Gas  &  Elec.  Co.  v.  Ins.  Co.      173 

McAllister  v.  Ins.  Co.  140 

M'Carty  v.  Blevins  «.  381 

.McGlinchey  v.  Fidelity  Co.  277 

McGlother  v.  Ins.  Co.  n.  289 

McGoivan  v.  Ins.  Co.  205 

McNally  --.  Ins.  Co.  n.  igo 

McQueeny  v.  Inc.  Co.  «.  207 

Mack  V.  Ins.  Co.  173 

Maine  Ben.  Assoc,  v.  Parks  249 

Mair  v.  Ins.  Co.  11.  299 
Manufacturer's    Ins.    Co.    v.    Zeit- 

inger  «.  188 

.Markey  v.  Ins.  Co.  98 

Marv-in  v.  Ins.  Co.  «.  517 

Mayo  V.  Ins.  Co.  «.  245 
Mechanics'  Sav.  Bank  v.  Guarantee 

Co.  n.  21 
Merchants'   &   Miners'   Co.  v.  Ins. 

Co.  232 

Millaudon  v.  Ins.  Co.  182 

Miller  v.  Aldrich  355 

Miller  v.  Ins  Cj.  (la.)  113 

Miller  v.  Ins.  Co.  (Neb.)  «.  213 

Millville  Ins.  Co.  v.  Assoc.  468 
Minn.  Title  Ins.  Co.  v.  Drexel      n.  333 

Mobile  Co.  v.  Walker  «.  258 

Moore  z'.  Ins.  Co.(N.  H.)  n.  170 

Moore  v.  Ins.  Co.  (N.  Y.)  n.  518 

Moulor  V.  Ins.  Co.  253 

Murray  v.  Ins.  Co.  301 

Nat.  Masonic  Assoc,  v.  Burr  n.  ic^^ 
Nelson  t.  Ins.  Co.  (la.)  254 

Nelson  v.  Ins.  Co.  (N.  J.)  568 

New  Hamp.  Ins,  Co.  v.  Noyes  ti.  28 
New  York  Life  Ins.  Co.  v.  Fletcher 

527,  -".  428 
New  York  Life  Ins.  Co.  v.  Statham 

135,  «.  138,  n.  140 
Newark  Mach.  Co.  v.  Ins.  Co.  93 

Niagara  Ins.  Co.  7'.  Foxhand  «.  191 
Niagara  Ins.  Co.  v.  Scammon  «.  150 
Nightingale  "c  Ins.  Co.  n.  528 

Noel  7'.  Ins.   Co.  «.  126 

North  Amer.  Ins.  Co.  v.  Burroughs 

«.  300 
Nori'i  Brit.  Ins.  Co.  v.  Ins.  Co.     it.  203 


TABLE    OF   CASES. 


Northwestern  Life  Ins.  Co.  v.  Bank 

n.  297 
Norwich  Fire  Ins.  Co.  v.  Boomer  357 
Noyes  v.  Inn.  Co.  n.  172 

Oakes  v.  Ins.  Co.  444 

O'Farrell  v.  Ins.  Co.  n.  526 

Olmstead  v.  Keyes  n.  368 

Orient  Ins.  Co.  v.  Daggs  n.  211 

Oshkosh  Gas  Co.  v.  Ins.  Co.  209 

Parker  v.  Ins.  Co.  n.  519 

Patterson  v.  Ins.  Co.  258,  n.  307 

Paul  V.  Virginia  «.  39 

Pellazzino  v.  Soc.  321 

Penn  Mut.  Fire  Ins.  Co.  v.  Schmidt 

n.  160 
Penn  Mut.  Life  Ins.  Co.  v.  Bank  120 
People  V.  Fire  Assoc,  of  Phila.  «.  39 
People  V.  Rose  16 

People's  Ins.  Co.  v.  Pulver  «.  188 

People's  Street  Ry.  v.  Spencer  341 

Phenix  Ins.  Co.  v.  Bank  578 

Phenix  Ins.  Co.  v.  Holcombe  «.  157 
Phoenix  Ins.  Co.  v.  Trans.  Co.  553 

Phoenix  Life  Ins.  Co.  v.  Raddin   92,  108 

290 

n.   133 

«•  367.  «•  381 

n.  63 

«.  254 

5 
n.  207 

255 
106 

375 

336 
329 


Pickett  V.  Ins.  Co. 
Piedmont  Co.  v.  Young 
Pingrey  v.  Ins.  Co. 
Powell  V.  Dewey 
Powers  V.  Assoc. 
Howies  V.  Innes 
Pratt  V.  Ins.  Co. 
Price  V.  Ins.  Co. 
Proudfoot  V.  Montefiore 
Pullis  V.  Robison 

Quarles  v.  Clayton 
Quigley  v.  Ins.  Co. 


Railway  Cond.  Assoc,  v.  Robinson 

n.  322 
Rau  V.  Ins.  Co.  n.  125 

Raymond  v.  Ins.  Co.  «.  199 

Rayner  v.  Preston  344,  «.  536 

Reed  v.  Ins.  Co.  «.  196 

Reischer  v.  Berwick  231 

Renier  v.  Ins.  Co.  «.  517 

Riddlesbarger  v.  Ins.  Co.  211 

Riggs  r.  Ins.  Co.  41 

Ritter  v.  Ins.  Co.  «.  259 


FACE. 

Rittler  v.  Smith  67 

Robinson  v.  Ins.  Co.  463 

Robinson  v.  Lodge  n.  198 

Rockford  Ins.  Co.  v.  Nelson  n.  125 

Rohrbach  r.  Ins.  Co.  n.  41 

Rustin  V.  Ins.  Co.  294 

Ryan  v.  Rothweiler  368 

Salisbury  v.  Ins.  Co.  n.  79 

Saveland  v.  Fidelity  Co.  310 

Scarth  v.  Soc.  n.  263 

Schunck  v.  Fond  n.  322 

Scottish  Union  Ins.  Qo.  v.  Dangaix 

«•  535 
Scripture  v.  Ins.  Co.  182 

Sergent  v.  Ins.  Co.  «.  518 

Shackehoq  v.  Fire  OflBce  n.  170 

Shader  v.  Assur.  Co.  297 

Shephard  v.  Ins.  Co.  n.  157 

Singleton  v.  Ins.  Co.  53 

Skudera  v.  Ins.  Co,  410 

Smaldone  v.  Ins.  Co.  501 

Smith  V.  Ins.  Co.  (la.)  n.  160 

Smith  V.  Ins.  Co.  (N.  Y.)  150 

Smith  V.  Soc.  n.  263 

Sneed  v.  Ins.  Co.  n.  194 

State  V.  Ackerman  31 

State  Ins.  Co.  v.  Schreck  160 

Steinbach  v.  Ins.  Co.  (N.  Y.)  «.  164 

Steinbach  v.  Ins.  Co.  (U.  S.)  n.  164 

Steinback  v.  Diepenbrock  402 

Sternaman  v.  Ins.  Co.  n.  526 

Stewart  v.  Ins.  Go.  255 

Sione  V.  Casualty  Co.  300,  «.  287 

Supreme  Commandery  v.  Ainsworth 

n.  323 
Supreme  Conclave  v.  Cappella  381 

Supreme  Lodge  v.  Taylor  255 

Suffolk  Fire  Ins.  Co.  v.  Boyden  573 

Sweeting  v.  Ins.  Co.  n.  150 

Thames  &  Mersey  Ins.  Co.  v.  Co.  228 
Thayer  v.  Ins.  Co.  n.  314 

Thebaud  v.  Ins.  Co.  221 

Thibert  v.  Lodge  «.  323 

Thompson  v.  Ins.  Co.  n.  140 

Titus  V.  Ins.  Co.  176,  «.  445 

Townsend  v.  Ins.  Co.  «.  175 

Trade  Ins.  Co.  v.  Barracliff  46 

Travelers'  Ins.  Co.  v.  Dunlap  287 

Travelers'  Ins.  Co.  v.  Ins.  Co.      n.  217 


TABLE    OF   CASES. 


XUl 


Travelers'  Ins.  Co.  v.  McConkey      315 

Travelers'  Ins.  Co.  v.  Melick  n.  284 

Travelers'  Ins.  Co.  v.  Murray  11.  285 

Triniiy  College  v.  Ins.  Co.  n.  361 

Tucker  v.  Ins.  Co.  «.  287 

Turley  v.  Ins.  Co.  «.  190 

Turner  v.  Ins.  Co.  146 

Tuttle  V.  Ins.  Co.  n.  287 

Underwood  v.  Ins.  Co.  «.  104 

Union  Mut.  Co.  v.  Frohard  «.  300 

Union  Mut.  Co.  v.  Reif  295 

United  Firemen's  Ins.  Co.  v.  Thomes 

«•  531 

United  Ins.  Co.  v.  Foote  183 

Van  Schoick  v.  Ins.  Co.  42S 

Van  Werden  v.  Assur.  Co.  411 

Van  Zandt  v.  Ins.  Co.  n.  263 
Vergeront  v.  Ins.  Co.         n.  151,  n.  212 

Viele  V.  Ins.  Co.  417.  472 

Wakefield  v.  Martin  401 

Walden  v.  Ins.  Co.  104 

Wallace  v.  Ins.  Co.  (La.)  n.  204 

Wallace  v.  Ins.  Co.  (U.  S.)  w.  241 

Waller  v.  Assur.  Co.  123 

Walradt  v.  Ins.  Co.  n.  157 

Waring  z.  Ins.  Co.  «.  49 


Washington  Ins.  Co.  v.  Ins.  Co.   n.  145 
Welch  V.  Ins.  Co.  267 

Welts  V.  Ins.  Co.  301 

West  of  Eng    Fire  Ins.  Co.  -'.  Isaacs, 

562 
Western  &   Atl.  Pipe  Lines  v.  Ins. 

Co.  131 

Western  Assur.  Co.  v.  McGlathery 

n.  193 
Western     Com.    Trav.    Assoc,    v. 

Smith  n.  I'li 

Wheeler  v.  Ins.  Co.  (N.  H.)  162 

Wheeler  v.  Ins.  Co.  (N.  Y.)  136 

White  V.  Ins.  Co.  184 

White  V.  Soc.  n.  122 

Whiied  V   Ins.  Co.  524 

Whiting  V.  Ins.  Co.  n.  140 

Whitmore  v.  Sup.  Lodge  n.  52 

Whitwell  V.  Harrison  219 

Wiebeler  v.  Ins.  Co.  79 

Wilkins  v.  Ins.  Co.  515 

Wilson  V.  Hill  i 

Worley  v.  Assoc.  «.  322 

Worthington  v.  Ins.  Co.       «.  93,  n.  135 
Wright  V.  Assoc.  264,  n.  59 

Wynkoop  v.  Ins.  Co.  203 


Young  V.  Ins.  Co. 


312 


A  SELECTION  OF  CASES 


LAW    OF    INSURANCE 


A  SELECTION  OF  CASES 


THE   LAW   OF  INSURANCE. 


PART  I. 
Nature  of  the  Contract. 


I.  Fire  Insurance. 

WILSON  V.   HILL. 

3  Met.  (Mass.)  66.  —  1841. 

Assumpsit  for  money  had  and  received.  The  case  was  submitted 
to  the  decision  of  the  court  on  the  following  facts  agreed  by  the 
parties: 

On  the  3d  of  January,  1838,  Benson,  Phelps  &  Capron,  of  Mendon, 
were  the  owners  of  a  factory  building  and  real  estate  there  situate, 
and  of  certain  machinery  in  said  building.  The  machinery  was 
mortgaged  by  them  to  Hill  &  Chapin,  commission  merchants  in 
Providence,  R.  I.,  to  secure  to  them  the  general  balance  due  them. 
Said  real  estate  was  subject  to  two  mortgages  which  are  hereinafter 
mentioned.  On  said  3d  of  Januarv,  Benson,  Phelps  &  Capron,  by 
their  agents,  the  said  Hill  &  Chapin,  caused  insurance  against  loss 
by  fire  to  be  effected  by  the  Manufacturer's  Mutual  Fire  Insurance 
Company  of  Rhode  Island,  for  the  term  of  one  year  then  next  ensu- 
ing, on  said  factory  building  and  machinery,  to  the  amount  of 
$2,700;  to  wit,  $800  on  the  factory  building,  $1,800  on  the  machin- 
ery, tools,  etc.;  and  $100  on  a  work-shop  and  machinery  therein. 
By  the  terms  of  the  policy,  (a  copy  of  which  is  made  part  of  this 
case,)  the  money,  in  case  of  loss,  was  to  be  paid  to  Hill  &  Chapin, 
On  the  19th  of  April,  1838,  Benson  &  Phelps,  in  consideration  of 
$2,800,  conveyed  all  their  interest  in  said  factory  building  and  real 

LAW  OF  INSURANCE —  I  [l] 


2  NATURE    OF   THE   CONTRACT. 

estate  to  William  Capron,  their  cotenant;  and  on  the  loth  of  May 
following,  Capron,  in  consideration  of  $3,000,  conveyed  all  his 
interest  in  the  same  to  the  plaintiff;  whereby  the  plaintiff  became 
sole  owner  thereof,  subject  to  the  said  mortgages  thereon. 

The  said  factory  building  and  machinery  were  destroyed  by  fire 
in  July,  1838,  and  on  the  3d  day  of  October  following  the  insurers 
paid  over  to  said  Hill  &  Chapin  the  said  sum  of  $2,700,  insured  a? 
aforesaid  upon  said  property. 

The  said  Benson,  Phelps  &  Capron  afterwards  because  insolvent^ 
and  upon  their  application  to  the  judge  of  probate  for  the  county 
of  Worcester,  their  estate  and  effects  were  taken  possession  of  by  a 
messenger  on  the  ist  day  of  September,  1838.  A  meeting  of  their 
creditors  was  duly  called  by  said  judge  of  probate,  under  the  insol- 
vent act,  (St.  1838,  c.  163,)  and  the  defendant  was  at  that  meeting 
duly  chosen  as  their  assignee.  He  afterwards,  as  such  assignee, 
demanded  of  Hill  &  Chapin  the  money  so  paid  to  them  by  said 
insurers.  Hill  &  Chapin  claimed  to  retain  of  it.  and  did  retain  of 
it.  in  their  hands,  for  what  was  due  to  them  on  their  said  mortgage, 
the  sum  of  $2,051.41.  The  defendant  commenced  an  action  against 
them  for  the  balance  of  said  money,  at  the  June  term,  1839,  of  the 
Court  of  Common  Pleas  held  at  Worcester,  and  at  the  following 
September  term  of  said  court,  they  were  defaulted,  and  judgment 
was  rendered  against  them  for  $626.21,  and  $11.19  costs,  which 
they  paid  to  the  defendant  on  the  24th  of  October,  1839,  and  the 
defendant  gave  them  a  receipt  therefor,  and  a  written  promise  to 
return  the  money  to  them,  if  Wilson  (the  present  plaintiff)  should 
recover  the  same  amount  in  a  suit  which  he  had  commenced,  or  was 
about  to  commence,  against  them,  or  against  Benson,  Phelps  & 
Capron. 

Said  property  was  subject,  as  before  mentioned  —  First.  To  a 
mortgage  of  one  undivided  third  part  of  said  factory  building,  made 
by  said  William  Capron  to  Arnold  &  Chadsey,  to  secure  the  pay- 
ment of  $5,000.  This  mortgage  was  assigned  to  the  plaintiff  on 
the  i2th  of  May,  1838.  Second.  To  a  mortgage  made  on  the  24th 
of  May,  1837,  by  Benson  &  Phelps  to  William  Whitney,  of  two-thirds 
of  said  factory,  etc.,  to  secure  the  payment  of  $1,721,  and  assigned 
to  the  plaintiff  on  the  17th  of  October,  1840. 

Shaw,  C.  J.  —  There  are  so  many  decisive  objections  to  the  plain- 
tiff's right  to  recover  that  it  appears  difificult  to  select  the  most 
prominent.  E^^en  if  the  plaintiff  had  any  interest  in  the  'loss  under 
this  policy,  and  any  right  to  claim  the  amount  of  the  insurance 
company,  or  of  their  assignees.  Hill  &  Chapin,  he  would   have  no 


FIRE   INSURANCE.  3 

right  to  follow  the  money  into  the  hands  of  the  defendant.  Dan 
Hill,  the  defendant,  had  been  duly  and  legally  appointed  the 
assignee  of  Benson,  Phelps  (t  Capron,  the  original  assured,  and  in 
this  capacity,  and  in  behalf  of  the  creditors,  he  demanded  the 
balance  of  the  money  in  the  hands  of  Hill  &  Chapin,  as  a  sum  due 
to  the  insolvent  debtors,  whom  he  legally  represented;  brought  an 
action  for  that  balance,  and  recovered  it,  under  a  judgment.  He 
cannot  be  considered  as  having  received  it  to  the  use  of  the  plain- 
tiff; there  was  no  privity,  in  fact  or  in  law,  between  these  parties. 
If  Hill  &  Chapin  were  liable  to  the  plaintiff,  for  the  same  money, 
they  paid  it  to  the  defendant  in  their  own  wrong,  and  such  payment 
would  have  been  no  defense  against  the  action  of  the  plaintiff,  if  he 
were  legally  entitled  to  it. 

But  it  appears  to  us,  that  the  claim  of  the  plaintiff  to  recover  in 
this  action  is  founded  upon  an  entire  misapprehension  of  the  nature 
and  legal  effect  of  a  contract  of  insurance.  An  insurance  of  build- 
ings against  loss  by  fire,  although  in  popular  language  it  may  be 
called  an  insurance  of  the  estate,  is  in  effect  a  contract  of  indem- 
nity, with  an  owner,  or  other  person  having  an  interest  in  the  preser- 
vation of  the  buildings,  as  mortgagee,  tenant,  or  otherwise,  to 
indemnify  him,  against  any  loss,  which  he  may  sustain,  in  case  they 
are  destroyed  or  damaged  by  fire.  If,  therefore,  the  assured  has 
wholly  parted  with  his  interest,  before  they  are  burnt,  and  they  are 
afterwards  burnt,  the  underwriter  incurs  no  obligation  to  pay  any- 
body. The  contract  was  to  indemnify  the  assured;  if  he  has  sus- 
tained no  damage,  the  contract  is  not  broken.  If,  indeed,  on  a 
transfer  of  the  estate,  the  vendor  assigns  his  policy  to  the  pur- 
chaser, and  this  is  made  known  to  the  insurer,  and  is  assented  to 
by  him,  it  constitutes  a  new  and  original  promise  to  the  assignee, 
to  indemnify  him  in  like  manner,  whilst  he  retains  an  interest  in 
the  estate;  and  the  exemption  of  the  insurer  from  further  liability 
to  the  vendor,  and  the  premium  already  paid  for  insurance  for  a  term 
not  yet  expired,  are  a  good  consideration  for  such  promise,  and 
constitute  a  new  and  valid  contract  between  the  insurer  and  the 
assignee.  But  such  undertaking  will  be  binding,  not  because  the 
policy  is  in  any  way  incident  to  the  estate,  or  runs  with  the  land, 
but  in  consequence  of  the  new  contract.  Even  the  assignment  of  a 
chose  in  action,  with  the  consent  of  thedebtor,  and  a  promise  on 
his  part  to  pay  the  assignee,  constitute  a  new  contract,  on  which 
the  assignee  may  sue  in  his  own  name.     Mowry  v.  Todd,  12  Mass.  281. 

For  the  general  principles  herein  stated  we  would  refer  to  the 
authorities  cited  by  Mr.  Chapin.  Lynch  v.  Dahell,  3  Bro.  P.  C. 
(ist  ed.)  497;    The  Sadler's  Company  v.  Badcock,  2  Atk.  554;  Marshall 


4  NATURE   OF   THE   CONTRACT. 

on  Ins.  (3d  ed.)  800-807;  Carroll  v.  Boston  Marine  Ins.  Co..,  8  Mass. 
515;  .-Etna  Fire  Ins.  Co.  v.  Tyler.,  16  Wend.  397. 

These  considerations,  however,  do  not  apply  to  a  case  where  the 
assured,  after  a  loss,  assigns  his  right  to  recover  that  loss;  it  would 
stand  on  the  same  footing  as  the  assignment  of  a  debt  or  right  to 
recover  a  sum  of  money  actually  due,  which,  like  the  assignment  of 
any  other  chose  in  action,  would  give  the  assignee  an  equitable 
interest  and  a  right  to  recover  in  the  name  of  the  assignor,  subject 
to  set-off  and  all  other  equities.     *     *     * 

No  assignment  was  ever  made  by  Benson,  Phelps  &  Capron  to 
the  plaintiff;  and  he  can  only  claim,  therefore,  as  assignee  in  law, 
in  consequence  of  having  been  a  purchaser  of  the  estate;  which  has 
already  been  considered. 

But  then  it  is  contended,  that  at  the  time  when  the  company  paid 
the  amount  of  the  loss  to  Hill  &  Chapin,  for  the  original  parties 
insured,  in  consequence  of  their  transfer  of  the  estate,  before  the 
loss,  they  could  not  legally  recover,  and  therefore  the  money  was 
voluntarily  paid  by  the  company,  and  must  be  deemed  to  have  been 
paid,  subject  to  the  prior  lien  of  Hill  &  Chapin,  the  agents,  equitably 
for  the  use  of  the  plaintiff,  who  has  become  the  purchaser  of  the 
estate.  I  do  not  think  we  have  the  facts  stated  with  sufficient  full- 
ness and  accuracy  to  enable  us  to  judge  whether  the  assured  had 
parted  with  all  their  interest,  at  the  time  of  the  loss.  It  is  stated 
that  the  plaintiff  had  purchased  the  estate,  subject  to  the  mortgages.. 
If  the  assured  remamed  still  liable  to  the  payment  of  the  debts  for 
which  those  mortgages  were  given  as  collateral  security,  then  they 
still  had  an  interest  in  the  estate;  because  a  fire  would  impair  or 
destroy  the  value  of  the  property  appropriated  to  the  payment  of 
their  debt;  and  they  therefore  had  an  interest  in  its  preservation, 
covered  by  the  policy.  One  of  the  mortgages  on  the  property  was 
not  assigned  to  the  plaintiff  till  after  the  loss.  Nor  does  it  appear 
that  the  assured  had  been  exempted  from  the  payment  of  any  of 
the  mortgage  debts.  We  cannot  therefore  say  with  confidence  that 
at  the  time  of  the  payment  by  the  company,  they  were  not  legally 
liable  for  such  payment.  At  all  events,  they  yielded  to  a  claim  of 
right,  and  paid  to  Hill  &  Chapin,  pursuant  to  the  provisions  of  the 
terms  of  the  policy,  to  enure  to  them  to  the  extent  of  their  lien; 
and  as  to  the  balance,  to  the  use  of  their  principals.  There  are  no 
facts  on  which  to  raise  an  implication  that  they  voluntarily  paid, 
upon  considerations  of  policy,  or  intended  to  pay  anything  to  the 
use  of  the  owner  of  the  estate,  or  that  they  had  any  regard,  in  such 
payment,  to  any  supposed  equitable  claim  to  the  present  plaintiff. 

Plaintiff  nonsuit. 


MARINE    INSURANCE. 

RAYNER  V.  PRESTON. 

i8  Ch.  D.  I.  — i88i. 

[^Reported  herein  at  /.344.] 


PEOPLE'S  STREET  RY.  v.   SPENCER. 

156  Pa..  85.  — 1S93. 

[Jieported  herein  at  />.34I.J 


QUARLES  V.  CLAYTON. 

87  Tenn.,  308.  — 1889. 
\^Reported  herein  at  /.336.] 


II.  Marine  Insurance. 

POWLES  AND  OTHERS  v.   INNES. 
II  Meeson  &  Welsby,  10.  — 1843. 

This  was  an  action  of  assumpsit  on  a  policy  of  insurance  on  ship. 

The  declaration  stated  that  the  policy  was  made  by  the  plain- 
tiffs as  agents  for  Robert  Page  and  Robert  Chamberlain;  that 
Page  and  Chamberlain,  and  one  Sarah  Banks,  were,  during  the  risk 
and  until  and  at  the  time  t)f  the  loss,  interested  in  the  ship  to  the 
amount  of  the  money  insured;  and  that  the  ship  was  totally  lost. 
The  defendant  pleaded,  first,  payment  of  75/.;  secondly,  as  to  the 
residue,  non-assumpsit;  thirdly,  except  as  to  75/.,  that  although 
Chamberlain  was  interested  in  the  ship  during  the  risk  to  the 
amount  of  400/.,  in  respect  of  which  the  plaintiffs  were  entitled  to 
recover  the  said  sum  of  75/.,  yet  that,  save  as  aforesaid,  Chamber- 
lain and  Page  were  not  interested  in  the  ship  duing  the  risk,  and 
that  the  policy  was  not  made  by  the  plaintiffs  as  agents  for  Sarah 
Banks  or  for  her  benefit,  nor  did  she  give  any  order  for  effecting 
the  same;  and  fourthly,  except  as  to  75/.,  that  although  Chamberlain 
was  interested  during  the  risk  to  the  amount  of  400/.,  etc.,  yet, 
save  as  aforesaid,  Chamberlain,  Page,  and  Banks  were  not  inter- 
ested in  the  ship  during  the  risk,  modo  et  forma.  On  these  pleas 
issues  were  joined. 


6  NATURE   OF   THE    CONTRACT. 

On  the  22d  of  January,  1S38,  tlie  plaintiffs,  who  are  insurance 
agents,  by  directions  from,  and  on  account  and  for  the  benefit  of 
Robert  Page  and  R(jbert  Chamberlain,  in  respect  of  their  two-iliirds 
of  the  vessel,  effected  a  poHcy  of  insurance  on  the  ship  Commerce. 
The  premiums  were  charged  to  and  paid  by  Page  an  J  Chamberlain. 
The  policy  was  subscribed  by  the  defendant  for  150/.  At  the  time 
of  the  insurance  and  at  the  time  of  the  loss  the  vessel  was  of  the 
value  of  1,200/  At  the  time  of  effecting  the  insurance  Chamberlain, 
Page,  and  Sarah  Banks  were  each  interested  in  one-third  of  the 
vessel.  The  vessel  was  lost  in  January,  1839,  within  the  time  men- 
tioned in  the  policy.  Before  the  loss  Page,  by  bill  of  sale,  conveyed 
his  share  to  Sarah  Banks.  From  the  time  of  the  said  bill  of  sale 
down  to  the  time  of  the  loss,  Chamberlain  and  Sarah  Banks  were 
owners  of  the  Commerce,  the  former  of  one-third  and  the  latter  of 
two-thirds  of  that  ship. 

Lord  Abinger,  C.  B.  — I  am  clearly  of  opinion  that  the  defend- 
ant is  entitled  to  our  judgment.  The  last  authority  that  has 
been  cited  is  a  mere  note  of  a  Nisi  Prius  case,  the  correctness  of 
which  I  greatly  doubt.  The  contract  of  insurance  was  originally 
only  a  contract  of  wager,  that  the  vessel  should  arrive  at  her  desti- 
nation; since  the  legislature  has  adopted  it,  it  is  a  contract  of 
indemnity  only,  and  noboJy  can  recover  in  respect  to  the  loss  who 
is  not  really  interested.  The  policy  is  but  a  chose  in  action,  and 
cannot  pass  merely  by  the  assignment  of  the  ship. 

Parke,  B.  —  I  am  of  the  same  opinion.  The  plaintiff  can  only 
recover  an  indemnity.  Then  what  has  this  party  lost,  if  he  has  sold 
his  interest  in  the  ship,  irrespective  of  the  policy?  Bank's  interest 
is  not  protected,  because  she  gave  no  authority  to  effect  the  insur- 
ance. Unless,  therefore,  there  was  some  understanding  that  the 
policy  should  be  kept  alive  for  her  benefit,  the  plaintiffs,  suing  on 
behalf  of  Page,  have  lost  nothing.  If  the  policy  had  been  handed 
over  with  the  bill  of  sale,  or  there  had  been  an  order  to  the  brokers 
to  hand  it  over,  the  case  would  be  different;  then  the  parties  might 
sue  as  trustees  for  the  purchaser;  but  we  cannot  infer  that,  no 
facts  being  stated  in  the  case  to  warrant  such  an  inference. 

GuRNEY,  B.,  concurred. 

Judgment  for  the  defendant. 


MERCHANTS  AND  MINERS'  TRANS.  CO.  v.  ASSOC.  FIRE- 
MEN'S INS.   CO. 

53  Mu.  448.  —  1880. 
[Reported  herein  at  p.  232.] 


LIFE    INSURANCE.  7 

III.  Life  Insurance. 
DALBY  V.   INDIA  &  LONDON  LIFE  ASSURANCE  CO. 

15  C.  B.,  365.  — 1854. 

Parke,  B.  — This  case  comes  before  us  on  a  bill  of  exceptions  to 
the  ruling  of  my  Brother  Creswell  at  Nisi  Prius.  We  learn  that, 
on  the  trial,  he  reserved  the  important  point  which  arose  in  it  for 
the  consideration  of  the  Court  of  Common  Pleas;  and  that  when  it 
came  on  for  discussion,  it  was  thought  right  to  put  it  on  the  record 
in  the  shape  of  a  bill  of  exceptions,  that  it  may  be  carried,  if  it 
should  be  thought  proper,  to  the  highest  tribunal;  and  we  have 
now,  after  a  very  able  argument  on  both  sides,  to  dispose  of  it  in 
this  Court  of  Error. 

It  is  an  action  on  what  is  usually  termed  a  policy  of  life  assurance, 
brought  by  the  plaintiff  as  a  trustee  for  the  Anchor  Life  Assurance 
Company,  on  a  policy  for  ^1,000  on  the  life  of  his  late  Royal  High- 
ness, the  Duke  of  Cambridge. 

The  Anchor  Life  Assurance  Company  had  insured  the  Duke's  life 
in  four  separate  policies  —  two  for  ^1,000,  and  two  for  ^^500  each, 
granted  by  that  company  to  one  Wright.  In  consequence  of  a  reso- 
lution of  their  directors,  they  determined  to  limit  their  insurances 
to  ;:r2,ooo  on  one  life;  and,  this  insurance  exceeding  it,  they  effected 
a  policy  with  the  defendants  for  ^1,000  by  way  of  counter-insurance. 

At  the  time  this  policy  was  subscribed  by  the  defendants,  the 
Anchor  Company  had  unquestionably  an  insurable  interest  to 
the  full  amount.  Afterwards  an  arrangement  was  made  between  the 
office  and  Wright  for  the  former  to  grant  an  annuity  to  Wright  and 
his  wife  in  consideration  of  a  sum  of  money,  and  of  the  delivery  up 
of  the  four  policies  to  be  canceled,  which  was  done;  but  one  of  the 
directors  kept  the  present  policy  on  foot,  by  the  payment  of  the 
premiums  till  the  Duke's  death. 

It  may  be  conceded,  for  the  purpose  of  the  present  argument, 
that  these  transactions  between  Wright  and  the  office  totally  put  an 
end  to  that  interest  which  the  Anchor  Company  had  when  the  policy 
was  effected,  and  in  respect  of  which  it  was  effected;  and  that,  at 
the  time  of  the  Duke's  death,  and  up  to  the  commencement  of  the 
suit,  the  plaintiff  had  no  interest  whatever. 

This  raises  the  very  important  question,  whether,  under  these 
circumstances,  the  assurance  was  void  and  nothing  could  be  recov- 
ered thereon. 

If  the  Court  had  thought  some  interest  at  the  time  of  the  Duke's 
death  was  necessary    to  make    the   policy   valid,  the  facts  attend- 


8  NATURE   OF   THE   CONTRACT. 

ing    the  keeping  up  of  the  policy    would  have  undergone  further 
discussion. 

There  is  the  usual  averment  in  the  declaration  that  at  the  time  of 
the  making  of  the  policy,  and  thence  until  the  death  of  the  Duke, 
the  Anchor  Assurance  Company  was  interested  in  the  life  of  the 
Duke,  and  a  plea  that  they  were  not  interested  tnodo  et  formd  — 
which  traverse  makes  it  unnecessary  to  prove  more  than  the  interest 
at  the  time  of  making  the  policy,  if  that  interest  was  sufificient  to 
make  it  valid  in  point  of  law.  Lush  v.  Russell,  5  Exch.  203.  We  are 
all  of  opinion  that  it  u<as  sufificient;  and  but  for  the  case  of  Godsall 
V.  Boldero,  9  East,  72,  should  have  felt  no  doubt  upon  the  question. 

The  contract  commonly  called  life  assurance,  when  properly 
considered,  is  a  mere  contract  to  pay  a  certain  sum  of  money  on 
the  death  of  a  person,  in  consideration  of  the  due  payment  of  a 
certain  annuity  for  his  life  —  the  amount  of  the  annuity  being  calcu- 
lated, in  the  first  instance,  according  to  the  probable  duration  of 
the  life;  and,  when  once  fixed,  it  is  constant  and  invariable.  The 
stipulated  amount  of  annuity  is  to  be  uniformly  paid  on  one  side, 
and  the  sum  to  be  paid  in  the  event  of  death  is  always  (ekcept  when 
bonuses  have  been  given  by  prosperous  offices)  the  same,  on  the 
other.  This  species  of  insurance  in  no  way  resembles  a  contract  of 
indemnity. 

Policies  of  assurance  against  fire  and  against  marine  risks,  are 
both  properly  contracts  of  indemnity  —  the  insurer  engaging  to 
make  good,  within  certain  limited  amounts,  the  losses  sustained  by 
the  assured  in  their  buildings,  ships,  and  effects.  Policies  on  mari- 
time risks  were  afterwards  used  improperly,  and  made  mere  wagers 
on  the  happening  of  those  perils.  This  practice  was  limited  by  the 
19  G.  2,  c.  37,  and  put  an  end  to  in  all  except  a  few  cases.  But,  at 
common  law,  before  this  statute  with  respect  to  maritime  risks,  and 
the  14  G.  3,  c.  48,  as  to  insurances  on  lives,  it  is  perfectly  clear  that 
all  contracts  for  wager-policies,  and  wagers  which  were  not  contrary 
to  the  policy  of  the  law,  were  legal  contracts;  and  so  it  is  stated  by 
the  Court  in  Cousins  v.  Nantes,  3  Taunt.  513,  to  have  been  solemnly 
determined  in  the  case  of  Lucena  v.  Crawfurd,  2  Bos.  &  P.  324,  2  N. 
R.  269,  without  even  a  difference  of  opinion  among  all  the  judges. 
To  the  like  effect  was  the  decision  of  the  Court  of  Error  in  Ireland, 
before  all  the  judges  except  three,  in  The  British  Insurance  Company 
V.  Magee,  Cooke  &  Alcock,  182,  that  the  insurance  was  legal  at 
common  law. 

The  contract,  therefore,  in  this  case,  to  pay  a  fixed  sum  of  ^1,000 
on  the  death  of  the  late  Duke  of- Cambridge,  would  have  been 
unquestionably   legal   at  common   law,  if   the   plaintiff  had   had  an 


LIFE    INSURANCE.  9 

interest  thereon  or  not;  and  the  sole  question  is,  whether  this 
policy  was  rendered  illegal  and  void  by  the  provisions  of  the  statute 
14  G.  3,  c.  48.     This  depends  upon  its  true  construction. 

The  statute  recites,  that  the  making  insurances  on  lives  and  other 
events  wherein  the  assured  shall  have  no  interest,  hath  introduced 
a  mischievous  kind  of  gaming;  and,  for  the  remedy  thereof,  it 
enacts,  "  that  no  insurance  shall  be  made  by  any  one  on  the  life  or 
lives  of  any  person  or  persons,  or  on  any  other  events  whatsoever, 
wherein  the  person  or  persons  for  whose  use  and  benefit,  or  on 
whose  account  such  policy  shall  be  made,  shall  have  no  interest,  or 
by  way  of  gaming  or  wagering;  and  that  every  assurance  made  con- 
trary to  the  true  intent  and  meaning  hereof  shall  be  null  and  void 
to  all  intents  and  purposes  whatsoever." 

As  the  Anchor  Assurance  Company  had  unquestionably  an  inter- 
est in  the  continuance  of  the  life  of  the  Duke  of  Cambridge  —  and 
that  to  the  amount  of  ^1,000,  because  they  had  bound  themselves 
to  pay  a  sum  of  ^1,000  to  Mr.  Wright  on  that  event  —  the  policy 
effected  by  them  with  the  defendants  was  certainly  legal  and  valid, 
and  the  plaintiff,  without  the  slightest  doubt,  could  have  recovered 
the  full  amount,  if  there  were  no  other  provisions  in  the  Act. 

This  contract  is  good  at  common  law,  and  certainly  not  avoided 
by  the  ist  section  of  the  14  G.  3,  .c.  48.  This  section,  it  is  to  be 
observed,  does  not  provide  for  any  particular  amount  of  interest. 
According  to  it,  if  there  was  any  interest,  however  small,  the  policy 
would  not  be  avoided. 

The  question  arises  on  the  third  clause  It  is  as  follows:  "And 
be  it  further  enacted,  that,  in  all  cases  where .  the  insured  hath 
interest  in  such  life  or  lives,  event  or  events,  no  greater  sum  shall 
be  recovered  or  received  from  the  insurer  or  insurers,  than  the 
amount  or  value  of  the  interest  of  the  assured  in  such  life  or  lives, 
or  other  event  or  events." 

Now,  what  is  the  meaning  of  this  provision? 

On  the  part  of  the  plaintiff,  it  is  said,  it  means  only  that  in  all 
cases  in  which  the  party  insuring  has  an  interest  when  he  effects  the 
policy,  his  right  to  recover  and  receive  is  to  be  limited  to  that 
amount;  otherwise,  under  color  of  a  small  interest,  a  wagering 
policy  might  be  made  to  a  large  amount  —  as  it  might  if  the  first 
clause  stood  alone.  The  right  to  recover,  therefore,  is  limited  to 
the  amount  of  the  interest  at  the  titne  of  effecting  the  policy.  Upon 
that  value,  the  assured  must  have  the  amount  of  premium  calculated ; 
if  he  states  it  truly,  no  difficulty  can  occur;  he  pays  in  the  annuity 
for  life  the  fair  value  of  the  sum  payable  at  death.  If  he  misrepre- 
sents, by  over-rating  the  value  of  the  interest,  it  is  his  own  fault  in 


lO  NATURE   OF   THE   CONTRACT. 

paying  more  in  the  way  of  annuity  than  he  ought;  and  he  can 
recover  only  the  true  value  of  the  interest  in  respect  of  which  he 
effected  the  policy;  but  that  value  he  can  recover.  Thus,  the  lia- 
bility of  the  assurer  becomes  constant  and  uniform,  to  pay  an  unva- 
rying sum  on  the  death  of  the  cestui  que  vie^  in  consideration  of  an 
unvarying  and  uniform  premium  paid  by  the  assured.  The  bargain 
is  fixed  as  to  the  amount  on  both  sides. 

This  construction  is  effected  by  reading  the  word  "  hath  "  as 
referring  to  the  time  of  effecting  the  policy.  By  the  first  section, 
the  assured  is  prohibited  from  effecting  an  insurance  on  a  life  or  on 
an  event  wherein  he  "  shall  have  "  no  interest  —  that  is,  at  the  lime 
of  assuring;  and  then  the  third  section  requires  that  he  shall  covvr 
only  the  interest  that  he  "  hath."  If  he  has  an  interest  when  the 
policy  is  made,  he  is  not  wagering  or  gaming,  and  the  prohibition 
of  the  statute  does  not  apply  to  his  case.  Had  the  third  section 
provided  that  no  more  than  the  amount  or  value  of  the  interest 
should  be  insured,  a  question  might  have  been  raised,  whether,  if 
the  insurance  had  been  for  a  larger  amount,  the  whole  would  not 
have  been  void;  but  the  prohibition  to  recover  or  receive  more 
than  that  amount,  obviates  any  difficulty  on  that  head. 

On  the  other  hand,  the  defendants  contend  that  the  meaning  of 
this  clause  is,  that  the  assured  shall  recover  no  more  than  the  value 
of  the  interest  which  he  has  at  the  time  of  the  recovery,  or  receive 
more  than  its  value  at  the  time  of  the  receipt. 

The  words  must  be  altered  materially  to  limit  the  sum  to  be 
recovered  to  the  value  at  the  time  of  the  death,  or  (if  payable  at  a 
time  after  death)  when  the  cause  of  action  accrues. 

But  there  is  a  most  serious  objection  to  either  of  these  construc- 
tions. It  is  that  the  written  contract,  which  for  the  reasons  given 
before,  is  not  a  wagering  contract,  but  a  valid  one  permitted  by  the 
statutes  and  very  clear  in  its  language,  is  by  this  mode  of  construc- 
tion completely  altered  in  its  terms  and  effect.  It  is  no  longer  a 
contract  to  pay  a  certain  sum  on  the  value  of  a  then-existing  inter- 
est, in  the  event  of  death,  in  consideration  of  a  fixed  annuity  calcu- 
lated with  reference  to  that  sum;  but  a  contract  to  pay  —  contrary 
to  its  express  words  —  a  varying  sum,  according  to  the  alteration  of 
the  value  of  that  interest  at  the  time  of  the  death,  or  the  accrual 
of  the  cause  of  action,  or  the  time  of  the  verdict  or  execution;  and 
yet  the  price  or  the  premium  to  be  paid  is  fixed,  calculated  on  the 
original  fixed  value,  and  is  unvarying;  so  that  the  assured  is  obliged 
to  pay  a  certain  premium  every  year,  calculated  on  the  value  of  his 
interest  at  the  time  of  the  policy,  in  order  to  have  a  right  to  recover 
an   uncertain  sum,  viz.,  that  which  happens  to  be  the  value  of  the 


LIFE    INSURANCE.  II 

ii.terest  at  th.e  time  of  the  death,  or  afterwards,  or  at  the  time  of  the 
verdict.  He  has  not,  therefore,  a  sum  certain  which  he  stipulate,! 
for  and  bought  with  a  certain  annuity;  but  it  may  be  a  much  less 
sum,  or  even  none  at  all. 

This  seems  to  us  so  contrary  to  justice  and  fair  dealing  and  com- 
mon honesty,  that  this  construction  cannot,  v/e  think,  be  put  upon 
this  section.  We  should,  therefore,  have  no  hesitation,  if  the  ques- 
ti  ji  were  res  intfgi-a,  in  putting  the  much  more  reasonable  construc- 
ti  m  on  the  statute,  that,  if  there  is  an  interest  at  the  time  of  the 
policy,  it  is  not  a  wagering  policy,  and  that  the  true  value  of  that 
interest  may  be  recovered  in  exact  conformity  with  the  words  of 
the  contract  itself. 

The  only  effect  of  the  statute  is  to  make  the  assured  value  his 
interest  at  its  true  amount  when  he  makes  the  contract. 

But  it  is  said  that  the  case  of  Godsallv.  Boldero,  g  East,  72,  has 
concluded  this  question. 

Upon  considering  this  case  it  is  certain  that  Lord  Eilenboiough 
decided  it  upon  the  assumption  that  a  life-policy  was  in  its  nature 
a  contract  of  indemnity,  as  policies  on  marine  risks  and  against 
fire  undoubtedly  are;  and  that  the  action  was,  in  point  of  law, 
founded  on  the  supposed  damnific£tioa  occasioned  by  the  death 
of  the  debtor  existing  at  the  time  of  the  action  brought;  and  his 
Lordship  relied  upon  the  decision  of  Lord  Mansfield  in  Hamilton  v. 
Mendes,  2  Burr.  12 10,  that  the  plaintiff's  demand  was  for  an  indem- 
nity only.  Lord  Mansfield  was  speaking  of  a  policy  against  marine 
risks,  which  is  in  its  terms  a  contract  for  indemnity  only.  But  that 
is  not  of  the  nature  of  what  is  termed  an  assurance  for  life;  it  really 
is  what  it  is  on  the  face  of  it  —  a  contract  to  pay  a  certain  sum  in 
the  event  of  death.  It  is  valid  at  common  law;  and,  if  it  is  made 
by  a  person  having  an  interest  in  the  duration  of  the  life,  it  is  not 
prohibited  by  the  statute  14  G.  3,  c.  48. 

But,  though  we  are  quite  satisfied  that  the  case  of  Godsall  v. 
Boldero  was  founded  on  a  mistaken  analogy  and  wrong,  we  should 
hesitate  to  overrule  it,  though  sitting  in  a  Court  of  Error,  if  it  had 
been  constantly  approved  and  followed  and  not  questioned,  though 
many  opportunities  have  been  offered  to  question  it.  It  was  stated 
that  it  had  not  been  disputed  in  practice  and  had  been  cited  by 
several  eminent  judges  as  established  law.  The  judgment  itself 
was  not,  and  could  not  be,  questioned  in  a  Court  of  Error;  for,  one 
of  the  issues,  ////  debet^  was  found  for  the  defendant. 

Since  that  case  we  know  practically,  and  that  circumstance  is 
mentioned  by  some  of  the  judges  in  the  cases  hereinafter  referred 
to,  that  the  insurance  offices,  generally  speaking,  have  not  availed 


12  NATURE   OF   THE   CONTRACT. 

themselves  of  the  decision,  as  they  found  it  very  injurious  to  their 
interest  to  do  so.  They  have  therefore,  generally  speaking,  paid  the 
amount  of  their  life  insurances,  so  that  the  number  of  cases  in  which 
it  could  be  questioned  is  probably  very  small  indeed.  And  it  may 
truly  be  said  that,  instead  of  the  decision  in  Godsall  v.  Bohiero  being 
uniformly  acquiesced  in  and  acted  upon  it  has  been  uniformly 
disregarded. 

Then,  as  to  the  cases.  There  is  no  case  at  law,  except  that  of 
Barber  v.  Morris,  i  M.  &  Rob.  62,  in  which  the  case  of  Godsall  v. 
Boldero  was  incidentally  noticed  as  proving  it  to  be  necessary  that 
the  interest  should  continue  till  the  death  of  the  ^^i//// ^//^  z'/V.  It 
was  proved  in  that  case  to  be  the  practice  of  the  particular  ofifice  in 
which  that  assurance  was  made  to  pay  the  sums  assured  without 
inquiry  as  to  the  existence  of  an  insurable  interest;  and  on  that 
account  it  was  held  that  the  policy,  though  in  that  case  the  interest 
had  ceased,  was  a  valuable  policy  and  the  plaintiff  could  not  recover 
on  the  ground  that  the  defendant,  the  vendor  of  it,  was  guilty  of 
fraudulent  concealment  in  not  disclosing  that  the  interest  had  ceased. 
This  was  the  point  of  the  case;  and,  though  there  was  a  dictum  of 
Lord  Tenterden,  that  the  payment  of  the  sum  insured  could 
not  be  enforced,  it  was  not  at  all  necessary  to  the  decision  of 
the  case. 

The  other  cases  cited  on  the  argument  in  this  case,  were  cases  in 
equity,  where  the  propriety  of  the  decision  of  Godsall  v.  Boldero  did 
not  come  in  question. 

The  questions  arose  as  to  the  right  of  the  creditor  and  debtor, 
inter  se,  where  the  offices  have  paid  the  value  of  a  policy,  in  Hum- 
phrey V.  Arabia,  2  Lloyd  &  G.  318;  Hen  son  v.  Blackwell,  2  Hare, 
434,  cor.  Sir  J.  Wigram,  V.  C. ;  Phillips  v.  Eashvood,  i  Lloyd  &  G. 
(Gas.  temp.  Sugden)  281  —where  the  point  decided  was  that  a  life- 
policy,  as  a  security  for  a  debt,  passed  under  a  will  bequeathing 
debts;  the  Lord  Chancellor  stating  that  the  offices  found  it  not  for 
their  benefit  to  act  on  the  rigid  rule  of  Godsall  v.  Boldero.  In  these 
cases  the  different  judges  concerned  in  them  do  not  dispute  —  some, 
indeed,  appear  to  approve  of  —  the  case  of  Godsall  \.  Boldero:  but 
it  was  not  material  in  any  to  controvert  it;  and  the  questions 
to  be  decided  were  quite  independent  of  the  authority  of  that 
case. 

We  do  not  think  we  ought  to  feel  ourselves  bound,  sitting  in  a 
Court  of  Error,  by  the  authority  of  this  case,  which  itself  could  not 
be  questioned  by  writ  of  error;  and  as  so  few,  if  any,  subsequent 
cases  have  arisen   in  which   the   soundness  of   the    principle  there 


MUTUAL  BENEFIT  INSURANCE.  1 3 

relied    upon    could     be    made    the    subject    of    judicial    inquiry; 
and,  as  in  practice,    it  may   be    said    that  it  has  been  constantly 

disregarded. 

Judgment  reversed,  and  venire  de  novo} 


IV.  Mutual  Benefit  Insurance. 

COMMONWEALTH  v.  WETHERBEE. 

105  Mass.,  149.  —  1870. 

Indictment  on  the  St.  of  1867,  c.  267,  §  5,  for  acting  in  the  trans- 
action of  the  business  of  insurance  as  agent  of  an  insurance  com- 
pany not  incorporated  in  this  Commonwealth,  without  first  procuring 
from  the  insurance  commissioner  a  certificate  of  authority  to  do  so. 

Gray,  J. — A  contract  of  insurance  is  an  agreement  by  which 
one  party,  for  a  consideration,  (which  is  usually  paid  in  money, 
either  in  one  sum,  or  at  different  times  during  the  continuance  of 
the  risk,)  promises  to  make  a  certain  payment  of  money  upon  the 
destruction  or  injury  of  something  in  which  the  other  party  has  an 
interest.  In  fire  insurance  and  marine  insurance  the  thing  insured 
is  property;  in  life  or  accident  insurance  it  is  the  life  or  health  of  a 
person.  In  either  case  neither  the  times  and  amounts  of  payments 
by  the  assured,  nor  the  modes  of  estimating  or  3ecLiring  the  pay- 
ment of   the   sum   to  be   paid   by  the   insurer,  affect   the   question 

'  "  There  being  a  debt  at  the  time  the  policy  is  issued,  it  is  ihen  valid.  It 
contains  no  condition  referring  to  the  continuance  of  the  indebtedness.  But, 
on  the  contrary,  the  policy  evidences  a  fiat  and  positive  promise  to  pay  a  given 
sum  at  the  termination  of  the  life  named.  *  *  *  From  the  nature  of  the 
contract,  which  is  paid  for  by  the  creditor,  he  needs  the  payment  of  the  policy 
to  do  complete  justice  to  him.  Suppose  he  has  received,  subsequent  to  pay- 
ment of  premiums  for  years,  the  debt  due  from  his  debtor,  he  has  thus  received 
only  what  it  may  be  assumed  he  has  advanced  or  loaned  to  his  debtor.  He  has 
received  nothing  for  the  series  of  premiums  he  has  delivered  over  from  year  to 
year  to  the  insurer  to  keep  alive  the  policy.  So,  too,  in  the  case  at  hand,  if  we 
were  to  hold  that  the  policy  was  airoided  by  payment  or  discharge  in  bank- 
ruptcy of  the  debt,  the  creditor  would  surely  be  the  loserof  the  premiums  paid, 
after  the  payment  of  his  debt  or  the  discharge  in  bankruptcy,  and  the  insur- 
ance company  would  be  the  gainer.  It  would  keep  in  its  coffers  moneys  which 
it  received  as  a  consideration  for  its  promise,  which  it  had  not  kept.  It  vvould  be 
the  gainer  by  the  incidental  circumstance  that  the  debtor  had  paid  what  only 
he  justly  owed  his  creditor,  or  what  he  had  escaped  paying  bv  obtaining  a  dis- 
charge in  bankruptcy.  Surely  no  such  contingency  was  taken  into  mind  or 
measured    in  fixing  the  amount   of  premiums  demanded  for  the  policy.     That 


14  NATURE   OF   THE   CONTRACT. 

whether  the  agreement  between  them  is  a  contract  of  insurance. 
All  that  is  requisite  to  constitute  such  a  contract  is  the  payment  of 
the  consideration  by  the  one,  and  the  promise  of  the  other  to  pay 
the  amount  of  the  insurance  upon  the  happening  of  injury  to  the 
subject  by  a  contingency  contemplated  in  the  contract. 

The  contract  made  between  the  Connecticut  Mutual  Benefit  Com- 
pany and  each  of  its  members,  by  the  certificate  of  membership 
issued  according  to  its  charter,  does  not  differ  in  any  essential  par- 
ticular of  form  or  substance  from  an  ordinary  policy  of  mutual  life 
insurance.  The  subject  insured  is  the  life  of  the  member.  The 
risk  insured  is  death  from  any  cause  not  excepted  in  the  terms  of 
the  contract.  The  assured  pays  a  sum  fi.\ed  by  the  directors  and 
not  exceeding  ten  dollars,  at  the  inception  of  the  contract,  and 
assessments  of  two  dollars  each  annually,  and  of  one  dollar  each 
upon  the  death  of  any  member  ot  the  division  to  which  he  belongs, 
during  the  continuance  of  the  risk.  In  case  of  the  death  of  the 
assured  by  a  peril  insured  against,  the  company  absolutely  promises 
to  pay  to  its  representatives,  in  sixty  days  after  receiving  satisfac- 
tory notice  and  proof  of  his  death,  "  as  many  dollars  as  there  are 
members  in  "  the  same  division,  the  number  of  which  is  limited  to 
five  thousand.  Tne  payment  of  this  sum  is  subject  to  no  contin- 
gency but  the  insolvency  of  the  corporation.  The  means  of  paying 
it  are  derived  from  the  assessments  collected  upon  his  death  from 
other  members;  from  the  money  received  upon  issuing  other  cer- 
tificates of  membership,  which  the  by-laws  declare  may,  after  pay- 
amount  was  ascertained  by  the  standard  tables  relating  lo  the  probabilities  of 
human  life  upon  which  life  insurance  companies  anchor  when  they  fi.K  and 
determine  the  schedule  of  premiums  to  be  exacted  in  the  conduct  of  their  busi- 
ness. We  are,  upon  principle,  prepared  to  agree  with  the  English  court  in  its 
conclusion  in  Dalby  v.  India  and  London  Life  Assurance  Company  {2%  Eng.  Law- 
and  Eq.  312).  Indeed,  we  think  the  doctrine  of  that  case  has  been  accepted  in 
this  state,  and  thai  both  upon  principle  and  authority  we  should  say  that  the 
insurer  is  bound  to  fulfil  its  contract,  valid  in  its  inception,  notwithstanding  the 
debtor  upon  whose  life  il  runs  may  have  paid  his  creditor  or  obtained  a  dis- 
charge in  bankruptcy  therefrom.  Rawls  v.  American  Life  Ins.  Co.,  36  Barb. 
357;  affirmed  27  N.  Y.  282;  St.  John  v.  American  Mutual  Life  Ins.  Co.,  3  Kern. 
31,  and  note  at  p.  41;  Olmsted  v.  Keys,  85  N.  Y.  59S,  599;  Bliss  on  Life  Ins, 
§  30;  May  on  Ins.,  g§  115,  lib."  —  Ferguson  v.  Mass.  Mut.  Life  Ins.  Co.,  32 
Hun,  311,  312. 

In  Conn.  Life  Ins.  Co.  v.  Schaefer,  94  U.  S  457,  the  policy  was  taken  by  hus- 
band and  wife  upon  their  joint  lives,  payable  to  the  survivor.  Subsequently 
they  were  divorced  a  vinculo  matrimonii,  and  the  wife  having  paid  the  premium 
up  to  her  former  husband's  death,  sued  qp.  the  policy.  It  v\a--  held  that  the 
policy  being  valid  at  its  inception,  the  subsequent  cessation  of  her  insurable 
interest  did  not  affect  her  claim. 


ACCIDENT   INSURANCE.  1 5 

r/.r.if.  of  expenses,  be  "  used  to  cover  losses  caused  by  the  delin- 
quencies of  members;"  and  from  the  guarantee  fund  of  one  hun- 
dred thousand  dollars,  established  by  the  corporation  under  its 
charter. 

This  is  not  the  less  a  contract  of  mutual  insurance  upon  the  life 
of  the  assured,  because  the  amount  to  be  paid  by  the  corporation 
is  not  a  gross  sum,  but  a  sum  graduated  by  the  number  of  members 
holding  similar  contracts;  nor  because  a  portion  of  the  premiums  is 
to  be  paid  upon  the  uncertain  periods  of  the  deaths  of  such  mem- 
bers; nor  because,  in  case  of  nonpayment  of  assessments  by  any 
member,  the  contract  provides  no  means  of  enforcing  payment 
thereof,  but  merely  declares  the  contract  to  be  at  an  end,  and  all 
moneys  previously  paid  by  the  assured,  and  all  dividends  and  cred- 
its accrued  to  him,  to  be  forfeited  to  the  company. 

The  fact,  offered  to  be  proved  by  the  defendant,  that  the  object 
of  the  organization  was  benevolent  and  not  speculative,  has  no 
bearing  upon  the  nature  and  effect  of  the  business  conducted  and 
the  contracts  made  by  the  corporation. 

The  ruling  that  this  association  was  an  insurance  company,  within 
the  meaning  of  the  statute  upon  which  the  defendant  was  indicted, 
was  therefore  correct,  and  his 

Exceptions  must  be  overruled. 


V.  Accident  Insurance. 

Barker,  J.,  in  EMPLOYERS'   LIABILITY  ASSURANCE  CO.  v. 

MERRILL. 

155  Mass.,  404,  408.  —  1892. 

The  distinguishing  feature  of  what  is  known  in  our  legislation  as 
"  accident  insurance  "  is  that  it  indemnifies  against  the  effects 
of  accidents  resulting  in  bodily  injury  or  death.  Its  field  is  not  to 
insure  against  loss  or  damage  to  property,  although  occasioned  by 
accident.  So  far  as  the  latter  class  of  insurance  has  been  developed, 
it  has  been  with  reference  to  boilers,  plate-glass,  and  perhaps  to 
domestic  animals,  and  injuries  to  property  by  street  cars,  and  is 
known  as  "  casualty  insurance."  The  development  of  accident 
insurance  has  been  analogous  to  the  development  of  fire  and  of  life 
insurance.  The  original  fire  policy  stipulated  for  payment  only  for 
the  loss  of  tangible  property  destroyed  or  injured  in  its  own  sub- 
stance by  fire.  But  fire  insurance  is  now  made  to  cover  rents  lost 
by  the  destruction  of  buildings  by  fire,  and  profits  unearned  because 


i6  NATURE   OF  THE   CONTRACT. 

of  the  destruction  by  fire  of  a  plant  b}'  the  use  of  which  they  would 
have  been  secured.  The  original  life  policy  was  payable  only  at 
the  death  of  the  assured,  but  now  the  forms  of  life  insurance  are 
very  numerous,  and  adapted  to  meet  all  the  risks  into  which  the 
continuation  of  the  life  of  the  person  insured  enters  as  a  constituent. 
The  invention  of  accident  insurance  preceded  the  recent  flood  of 
actions  of  tort  for  personal  injuries,  and  the  only  risk  froni  accidents 
to  the  person  then  commonly  thought  of  as  a  factor  in  ordinary  life 
was  the  risk  of  injury  to  one's  own  person.  Such  insurance  grew 
popular,  was  afterwards  seen  to  be  too  costly  for  general  use,  and 
was  abandoned  by  most  of  the  companies  which  engaged  in  the 
business.  But  when  it  came  to  be  understood  that  every  man 
engaged  in  business,  and  every  owner  or  lessee  of  business  property, 
was  exposed  to  heavy  losses  from  accidents  to  the  persons  of  others, 
the  chance  of  which  no  prudent  man  could  afford  to  ignore,  a  new 
demand  for  accident  insurance  against  personal  injuries  arose,  which 
it  was  the  legitimate  function  of  accident  insurance  companies  to 
meet.  By  the  words  of  clause  5  of  §  29,  of  the  statute,  (St.  1887, 
c.  214,)  such  companies  formed  or  operating  in  Massachusetts  were 
expressly  authorized  to  insure  against  bodily  injuries  and  death  by 
accident,  and  were  not  by  the  words  of  any  statute  restricted  to 
risks  by  accidents  to  the  person  of  the  assured.  So  long  as  they 
confined  themselves  to  insurance  against  accidents  to  the  person, 
and  to  contracting  to  indemnify  the  assured  against  losses  by  injuries 
to  persons  in  whom  he  had  an  insurable  interest,  because  legally 
liable  for  the  results  of  the  accident,  they  were  within  the  legiti- 
mate scope  of  accident  insurance. 


VI.  Fidelity  and  Guaranty  Insurance. 

PEOPLE  V.  ROSE. 

174  III.,  310.  — 1893. 

Wilkin,  J. — This  is  an  original  petition  for  mandamus  against 
James  A.  Rose,  as  Secretary  of  State.  The  petition  sets  forth  that 
on  January  27,  1898,  petitioners  made  application  to  the  respondent 
for  a  license  authorizing  them  to  open  subscription  books  to  the 
capital  stock  of  a  proposed  corporation.  The  application  was  made 
in  due  form,  and  accompanied  by  the  requisite  fee.  The  object  of 
the  corporation,  as  contained  in  the  statement,  is  as  follows:  "  To 
transact  in  the  State  of  Illinois  and  elsewhere  the  business  of  guar- 
antying the   fidelity  of  persons  holding  public  or  private  places  of 


FIDELITY   AND    GUARANTY    INSURANCE.  1 7 

trust,  and  the  performance  by  persons,  firms,  and  corporations  of 
contracts,  bonds,  recognizances,  and  undertakings  of  every  kind, 
and  of  becoming  surety  on  bonds  required  by  law,  and  on  every 
kind  of  contract,  obligation,  and  undertaking  of  persons,  firms,  and 
corporations."  The  Secretary  refused  to  issue  the  license,  upon 
the  ground  that  the  statute  under  which  the  application  is  made 
does  not  authorize  the  organization  of  corporations  for  the  objects 
stated  in  the  application.  Section  i  of  the  statute,  entitled  "  An 
act  concerning  corporations,"  approved  April  18,  1872,  provides 
"  that  corporations  may  be  formed  in  the  manner  provided  by  this 
act,  for  any  lawful  purpose,  except  banking,  insurance,  real  estate 
brokerage,  the  operation  of  railroads,  and  the  business  of  loaning 
money,  provided,"  etc.  The  only  question  here  raised  is  whether 
or  not  the  objects,  or  any  of  them,  of  the  proposed  corporation,  fall 
within  the  exception  "  insurance." 

The  following  definitions  of  the  term  "  insurance  "  are  cited 
from  standard  authorities  by  the  attorney-general  on  behalf  of  the 
respondent:  "  Guaranty  insurance  is  a  contract  whereby  one,  for 
a  consideration,  agrees  to  indemnify  another  against  loss  arising 
from  the  want  of  integrity,  fidelity,  or  insolvency  of  employes  and 
persons  holding  positions  of  trust,  against  insolvency  of  debtors, 
losses  in  trade,  losses  from  nonpayment  of  notes  and  other  evidences 
of  indebtedness,  or  against  breach  of  contract.  It  includes  other 
forms  of  insurance,  which  are  specifically  classified  as  '  fidelity 
guaranty,'  'credit  guaranty,'  etc."  i  Joyce,  Ins  §  12.  "Insur- 
ance is  a  contract  by  which  the  one  party,  in  consideration  of  a 
price  paid  to  him  adequate  to  the  risk,  becomes  security  to  the  other 
that  he  shall  not  suffer  loss,  prejudice,  or  damage  by  the  happening 
of  the  perils  specified,  to  certain  things  which  may  be  exposed  to 
them."  Lucine  v.  Craufurd,  2  Bos  &  P.  300.  "  Insurance,  in  its 
most  gensral  sense,  is  a  contract  whereby  one  party  agrees  to 
indemnify  another  in  case  he  shall  suffer  loss  in  respect  of  a  speci- 
fied subject  by  a  specified  peril."  11  Am.  &  Eng.  Enc.  Law,  280. 
"  Insurance  is  a  contract  whereby  one,  for  a  consideration,  under- 
takes to  compensate  another  if  he  shall  suffer  loss.  Such,  in  its 
most  general  terms,  is  the  definition  of  the  contract  which  is  to 
constitute  the  subject  of  the  following  chapters.  It  is  substantially 
the  definition  given  long  ago  by  Roccus,  and  is  recommended  alike 
by  its  brevity  and  its  comprehensiveness, — qualities  upon  which 
subsequent  writers  have  scarcely  been  able  to  improve.  *  *  * 
It  had  its  origin  in  the  necessities  of  commerce.  It  has  kept  pace 
with  its  progress,  expanded  to  meet  its  rising  wants  and  to  cover  its 
ever-widening  fields,  and,  under  the  guidance  of  the  spirit  of  modern 

L.\W  OF  INSURANCE —  2 


1 8  NATURE   OF   THE   CONTRACT. 

enterprise  tempere.l  by  a  prudent  forecast,  it  has,  from  time  to  time, 
with  wonderful  facility,  adapted  itself  to  the  new  interests  of  an 
advancing  civilization.  It  is  applicable  to  every  form  of  possible 
loss.  Wherever  danger  is  apprehended  or  protection  required,  it 
holds  out  its  fostering  hand,  and  promises  indemnity."  i  May  on 
Insurance,  §§  i,  2,  "  \  contract  whereby,  for  a  stipulated  consid- 
eration, one  party  undertakes  to  indemnify  the  other  against  cer- 
tain risks."  I  Phillips  on  Insurance,  §  i.  "  A  contract  by  which  a 
person,  in  consideration  of  a  gross  sum  or  a  periodical  payment, 
undertakes  to  pay  a  larger  sum  on  the  happening  of  a  particular 
event."  Smith  on  Common  Law,  299.  "  In  law,  a  contract,  by 
which  one  party,  for  an  agreed  consideration,  which  is  proportioned 
to  the  risk  involved,  undertakes  to  compensate  the  other  for  loss  on 
a  specified  thing  from  specified  causes."  Century  Diet.  "  Insur- 
ance." "  An  act  or  system  of  insuring  or  assuring  against  loss; 
specifically,  the  system  by  or  under  which  indemnity  or  pecuniary 
payment  is  guarantied  by  one  party  or  several  parties  to  another 
party,  in  certain  contingencies,  upon  specified  terms."  Standard 
Diet.  "  Insurance."  "  The  act  of  insuring  against  loss  or  damage 
by  a  contingent  event;  a  contract  whereby  one  party  undertakes  to 
indemnify  or  guaranty  the  other  against  loss  by  certain  specified 
risks."     Webster's  Diet.  "  Insurance." 

It  is  said  in  9  Am.  &  Eng.  Ency.  of  Law,  65  (cited  in  People  v. 
Fidelity  6-*  Casualty  Co.,  153  III.  25,):  "  Guaranty  insurance  is, 
in  its  practical  sense,  a  guaranty  or  insurance  against  loss  in  case 
a  person  named  shall  make  a  designated  default,  or  be  guilty  of 
specified  conduct.  It  is  usually  against  the  misconduct  or  dis- 
honesty of  an  employee  or  officer,  though  sometimes  against  the 
breach  of  a  contract.  This  branch  of  insurance  is  so  much  more 
modern  in  origin  and  development  than  fire,  marine,  life  and  acci- 
dent insurance  that  there  are  few  decisions  upon  the  subject;  but 
the  business  is  gradually  increasing,  and  is  doubtless  destined  to 
take  an  important  place  in  the  commercial  world.  It  may  be  con- 
fidently stated,  notwithstanding  the  comparative  absence  of  specific 
decisions,  that  the  general  principles  applicable  to  other  classes  of 
insurance  are  applicable  here  as  well.  Thus,  the  general  doctrine 
of  warranty,  representation,  and  concealment,  as  applied  to  fire, 
life,  and  marine  insurance,  is  applicable  also  to  the  subject  of  guar- 
anty insurance.  It  was  held  in  a  Canadian  case  that  a  company 
was  liable  on  a  policy  guarantying  the  faithful  and  diligent  perform- 
ance of  the  duty  of  a  clerk,  where  such  clerk  went  to  lunch,  leaving 
a  large  sum  of  money  in  open  bag.s  in  his  room,  which  money  disap- 
peared while   he  was  gone.     Overdrafts  allowed  without  security, 


FIDELITY   AND    GUARANTV    INSURANCE.  I9 

by  collusion  with  the  party  making  the  overdrafts,  is  within  a  policy 
which  insures  against  loss  '  by  the  want  of  integrity,  honesty,  and 
fidelity,  or  by  the  negligence,  default,  or  irregularities,  of  the 
manager.'  " 

In  Shakman  v.  U.  S.  Credit- System  Co.,  92  Wis.  366,  it  was 
held  that  a  contract  to  indemnify  a  merchant  against  loss  from 
insolvency  of  customers  was  a  contract  of  insurance,  and  it  was 
said:  "  We  regard  the  contract  before  us  as  unquestionably  a  con- 
tract of  insurance.  An  insurance  contract  is  a  contract  whereby 
one  party  agrees  to  wholly  or  partially  indemnify  another  for  loss 
or  damage  which  he  may  suffer  from  a  specified  peril.  The  peril 
of  loss  by  the  insolvency  of  customers  is  just  as  definite  and  real  a 
peril  to  a  merchant  or  manufacturer  as  the  peril  of  loss  by  accident, 
fire,  lightning,  or  tornado,  and  is  in  fact  much  more  frequent.  No 
reason  is  perceived  why  a  contract  of  indemnification  against  this 
ever-present  peril  is  not  just  as  legitimately  a  contract  of  insurance 
as  a  contract  which  indemnifies  against  the  more  familiar,  but  less 
frequent,  peril  by  fire.  This  very  contract  has  been  {sub  silentid) 
construed  as  a  policy  of  insurance  by  the  Supreme  Court  of  New 
Jersey.  Robertson  v.  U.  S.  Credit-System  Co.,  57  N.  J.  Law,  12. 
The  contract  being,  then,  a  contract  of  insurance,  and  the  defend- 
ant's business  being  the  making  of  such  contracts,  it  follows 
that  the  defendant  is  an  insurance  corporation,  within  the  meaning 
of  sections  1977  and  1978,  Rev.  St."  In  Tebbets  v.  Guaranty  Co.,  19 
C.  C.  A.  281,  73  Fed.  95,  the  action  was  upon  a  policy  of  insurance 
against  business  losses  or  "  uncollectible  debts  "  issued  by  the 
defendant  to  the  plaintiff,  and  ic  was  said:  "Insurance  against 
mercantile  losses  is  a  new  branch  of  the  business  of  underwriting, 
and  but  few  cases  dealing  with  policies  of  that  character  have  as  yet 
found  their  way  into  the  courts.  The  necessarily  nice  adjustments 
of  the  respective  proportions  of  loss  to  be  borne  by  the  insurer  and 
the  insured,  the  somewhat  intricate  provisions  which  are  required  in 
order  to  make  such  business  successful,  and  the  lack  of  experience 
in  formulating  the  stipulations  to  be  entered  into  by  both  the  par- 
ties to  such  a  contract,  have  naturally  tended  to  make  the  forms  of 
policy  crude  and  difficult  of  interpretation." 

We  do  not  understand  counsel  for  petitioners  to  deny  that  under 
these  authorities  and  definitions  one  or  more  of  the  objects  stated 
in  its  application  fall  within  the  term  "  insurance."  But  it  is 
insisted  that  Inasmuch  as  at  the  time  of  the  passage  of  the  general 
Incorporation  law  of  1872,  under  which  they  seek  to  organize,  there 
were  already  in  existence  statutory  provisions  for  the  incorporation 
of   :ompanies  known  as  "insurance  companies,"  —  that  is  to  say, 


20  NATURE   OF   THE    CONTRACT. 

fire,  inland  navigation,  and  marine  insurance  companies,  also  life 
insurance  companies,  —  and  that  provisions  like  those  of  the  charter 
here  sought  by  petitioners  were  practically  unknown  at  that  time 
therefore  the  legislature  did  not  intend,  by  the  use  of  tl\e  word 
"  insurance,"  other  kinds  of  insurance  than  existed  at  that  time, 
and  named  in  the  prior  enactments.  The  proposition  is  untenable. 
While  corporations  of  this  character  have  not  until  recently  been 
organized,  they  must,  under  the  foregoing  authorities,  be  treated 
as  a  form  of  insurance  companies,  and  as  such  they  fall  within  the 
express  limitation  named  in  the  statute.  The  language  of  the  excep- 
tion, in  common  acceptation,  includes  all  insurance  companies,  and  it 
is  not  for  the  court  to  say  that  only  certain  classes  were  intended. 
"  Courts  cannot,  as  a  general  rule,  disregard  the  plain  language  of 
a  statute.  It  is  their  duty  to  accept  it  as  they  find  it,  and 
enforce  it  as  plainly  written."  Coke  Co.  v.  Do7unc}\  \2i  111.  201, 
and  authorities  cited.  "  It  is  not  the  province  of  the  judiciary 
to  make  laws,  but  to  construe  and  interpret  them,  and  pass  upon 
their  validity."  Referring  to  authorities  cited,  it  is  further  said: 
"  A  careful  examination  of  all  these  cases  will  show  that  where  the 
construction  given  to  the  words  of  a  statute  is  variant  from  their 
strict  and  literal  meaning,  such  construction  is  only  justified  upon 
the  ground  that  it  effectuates  the  intention  of  the  legislature  as 
manifestly  disclosed  by  a  consideration  of  the  whole  context." 
Wunderle  v.  IViinderle,  144  111.  40. 

The  manifest  purpose  of  the  legislature  in  excepting  banking, 
insurance,  real-estate  brokerage,  and  other  corporations  from  the 
provisions  of  the  act  authorizing  the  incorporation  of  companies  for 
other  lawful  purposes,  was  that  tht-^e  excepted  corporations  should 
be  restrained  by  more  strict  requirements,  securing  the  safe  con- 
duct and  correct  administration  of  their  affairs.  The  object  stated 
in  the  petitioner's  application  —  especially  that  of  guarantying  the 
performance  by  persons,  firms,  and  corporations  of  contracts, 
bonds,  recognizances,  and  undertakings  of  every  kind  —  is  not  only 
to  enter  into  contracts  of  insurance,  within  the  meaning  of  the 
authorities  cited,  but  within  the  spirit  and  reason  of  the  exception. 
We  think  the  application  of  the  petitioners  was  properly  refused,  and 
the  petition  for  a  writ  of  mandamus  will  be  denied. 

Writ  denied.' 

M..\GRUDER,  J.,  dissenting. 

Carter,  C.  J.  —  I  do  not  agree  to  the  conclusion  reached  in 
this  case. 

'  "Although  of  more  recent  origin  than  the  ordinary  forms  of  insurance,  such 
as  fire,    marine,  and   life,   that   this   bond   is  a   branch   of  insurance  is  clearly 


FIDELITY    AND    GUARANTY    INSURANCE.  21 

apparent.  Cases  involving  this  form  of  contract  are  extremely  few,  still,  that 
the  law  of  insurance  applies  by  analogy  is  undoubtedly  true,  and  this  was  fully 
recognized  and  clearly  stated  by  the  circuit  court  of  appeals  for  this  circuit  in 
Supreme  Council  Catholic  Knights  of  America  v.  Fidelity  &=  Casualty  Co.  of  New 
York,  63  F.  48,  II  C.  C.  A.  96,  in  which  Judge  Lurton,  delivering  the  opinion, 
said:  'With  reference  to  bonds  of  this  kind,  executed  upon  a  consideration,  and 
by  a  corporation  organized  to  make  such  bonds  for  profit,  the  rule  of  construc- 
tion applied  to  ordinary  sureties  is  not  applicable.  The  bond  is  in  the  terms 
prescribed  by  the  surety,  and  any  doubtful  language  should  be  construed  most 
strongly  against  the  surety,  and  in  favor  of  the  indemnity,  which  the  assured 
had  reasonable  grounds  to  expect.  The  rule  applicable  to  fire  and  life  insur- 
ance is  the  rule,  by  analogy,  most  applicable  to  a  contract  like  that  in  this  case. 
This  method  of  furnishing  bond  to  make  good  loss  is  rapidly  superseding  all 
others  in  the  case  of  officers  of  private  corporations,  and  I  am  advised  that  legis- 
lation by  the  general  assembly  in  session  enables  companies  engaging  in  this 
business  to  make  bonds  for  all  public  officials  of  the  state  and  counties  thereof. 
The  business  is,  therefore,  becoming  one  of  vast  public  as  well  as  private 
importance,  and  it  cannot  be  objected  if  rules  of  reasonably  stringent  liability 
are  applied  to  these  contracts,  as  in  other  forms  of  insurance.  Conditions  on 
which  forfeiture  of  the  contract  is  claimed  being  construed  strongly  against 
insurer  and  liberally  in  favor  of  insured,  the  burden  is  on  defendant,  and  the 
defense  must  be  clearly  made  out.  Cotton  v.  Casualty  Co.,  41  Fed.  506;  Steel  v. 
Insurance  Co.,  2  C.  C.  A.  463,  51  Fed.  723,  and  cases  cited;  Aloulor  v.  Insurance 
Co..  Ill  U.  S.  341,  4  Sup.  Ct.  466;  Supreme  Council  Catholic  Knights  of  America 
V.  Fidelity  6^  Casualty  Co.  of  New  York,  63  Fed.  48,  il  C.  C.  A.  q6."  —  Mechanics' 
Savings  Bank  v.  Guarantee  Co.,  68  Fed.  459,  462. 


PART  II. 
Formation  of  the  Contract. 


I.  Parties  to  the  Contract. 

a.  Infants. 

JOHNSON  V.  NORTHWESTERN  MUT.  LIFE  INS    CO. 

56  Minn.,  365.  —  1894. 

Plaintiff,  when  seventeen  years  old,  obtained  a  policy  of  insur- 
ance from  defendant  company.  Immediately  after  he  became  of 
age,  he  disafifirmed  the  contract,  tendered  back  the  policy,  and 
demanded  the  return  of  the  money  he  had  paid  upon  it.  The 
defendant  did  not  return  the  money  and  plaintiff  brought  this  action 
to  recover  it.  The  substance  of  the  provisions  of  the  policy  with 
respect  to  the  surrender  of  the  policy  is  given  in  the  last  paragraph 
of  Judge  Mitchell's  opinion.  Defendant  demurred  to  the  complaint 
on  the  ground  that  it  did  not  state  facts  sufficient  to  constitute  a 
cause  of  action. 

Demurrer  overruled.      Defendant  appeals. 

Mitchell,  J. — This  case  was  argued  and  decided  at  the  last 
term  of  this  court.'  A  reargument  was  granted  for  the  reasons  that 
although  the  amount  was  small  the  legal  principles  involved  were 
important;  the  time  permitted  for  argument  under  our  rules  was 
brief;  the  case  was  decided  near  the  end  of  the  term,  without, 
perhaps,  the  degree  of  consideration  that  its  importance  demanded; 
and,  on  further  reflection,  we  are  not  satisfied  that  our  decision 
was  correct. 

The  former  opinion  laid  down  the  following  propositions,  to  which 
we  still  adhere:  (i)  That  the  contract  of  insurance  was  of  benefit 
to  the  infant  himself,  and  was  not  a  contract  for  the  benefit  of  third 
parties.     (2)  The  contract,  so  far  as  appears  on  its  face,  was  the 


'Opinion,  56  Minn.  369. 
[22] 


PARTIES   TO   THE   CONTRACT,  23 

usual  and  ordinary  one  for  life  insurance,  on  the  customar}'  terms, 
and  was  a  fair  and  reasonable  one,  and  free  from  any  fraud,  unfair- 
ness, or  undue  influence  on  part  of  the  defendant,  unless  the  con- 
trary is  to  be  presumed  from  the  fact  that  it  was  made  with  the 
infant.  It  is  not  correct,  however,  to  say  that  the  plaintiff  has 
received  no  benefit  from  the  contract,  or  that  the  defendant 
has  parted  with  nothing  of  value  under  it.  True,  the  plaintiff  has 
received  no  money,  and  the  defendant  has  paid  none  to  the  plain- 
tiff; but  the  life  of  the  former  was  insured  for  four  years,  and  if  he 
had  died  during  that  time,  the  defendant  would  ha^e  had  to  pay  the 
amount  of  the  policy  to  his  estate.  The  defendant  carried  the  risk 
all  that  time,  and  this  is  the  esseace  of  the  contract  of  insurance. 
Neither  does  it  follow  that  the  risk  has  cost  the  defendant  nothing 
in  money  because  plaintiff  himself  was  not  one  of  those  insured  who 
died.  The  case  is  therefore  one  of  a  voidable  or  rescindable  con- 
tract of  an  infant,  partly  performed  on  both  sides,  the  benefits  of 
which  the  infant  has  enjoyed,  but  which  he  cannot  return,  and 
where  there  is  no  charge  of  fraud,  unfairness,  or  undue  influence  on 
the  part  of  the  other  party,  unless,  as  already  suggested,  it  is  to  be 
presumed  from  the  fact  that  the  contract  was  made  with  an  infant. 
The  question  is,  can  the  plaintiff  recover  back  what  he  has  paid, 
assuming  that  the  contract  was  in  all  respects  fair  and  reasonable  ? 
The  opinion  heretofore  filed  held  that  he  can.  Without  taking  time 
to  cite  or  discuss  any  of  our  former  decisions,  it  is  sufficient  to  say 
that  none  of  them  commit  this  court  to  such  a  doctrine.  That  such 
a  rule  goes  further  than  is  necessary  for  the  protection  of  the  infant, 
and  would  often  work  gross  injustice  to  those  dealing  with  him,  is, 
to  our  minds,  clear.  Suppose  a  minor  engaged  in  agriculture  should 
hire  a  man  to  work  on  his  farm,  and  pay  him  reasonable  wages  for 
his  services.  According  to  this  rule,  the  minor  might  recover  back 
what  he  paid,  although  retaining  and  enjoying  the  fruits  of  the 
Other  man's  labor.  Or,  again,  suppose  a  man  engaged  in  mercantile 
business,  with  a  capital  of  $5,000,  should,  from  time  to  time,  buy 
and  pay  for  $100,000  worth  of  goods,  in  the  aggregate,  which  he 
had  sold,  and  had  got  his  pay.  According  to  this  doctrine,  he  could 
recover  back  the  $100,000  which  he  had  paid  to  the  various  parties 
from  whom  he  had  bought  the  goods.  Not  only  would  such  a  rule 
work  great  injustice  to  others,  but  it  would  be  positively  injurious 
to  the  infant  himself.  The  policy  of  the  law  is  to  shield  or  protect 
the  infant,  and  not  to  debar  him  from  the  privilege  of  contracting. 
But,  if  the  rule  suggested  is  to  obtain,  there  is  no  footing  on  which 
an  adult  can  deal  with  him,  except  for  necessaries.  Nobody  could 
or  woij.ld  do  any  business   with   him.     He   could   not  get  his   life 


24  FORMATION    OF   THE   CONTRACT. 

insured.  He  could  not  insure  his  property  against  fire.  He  could 
not  hire  servants  to  till  his  farm.  He  could  not  improve  or  keep 
up  his  land  or  buildings.  In  short,  however  advantageous  other 
contracts  might  be  to  him,  or  however  much  capital  he  might  have, 
he  could  do  absolutely  nothing,  except  to  buy  necessaries,  because 
nobody  would  dare  to  contract  with  him  for  anything  else.  It 
cannot  be  that  this  is  the  law.     Certainly,  it  ought  not  to  be. 

The  following  propositions  are  well  settled,  everywhere,  as  to  the 
rescindable  contracts  of  an  infant,  and  in  that  category  we  include 
all  contracts  except  for  necessaries:  First.  That  in  so  far  as  a 
contract  is  executory  on  part  of  an  infant,  he  may  always  inter- 
pose his  infancy  as  a  defense  to  an  action  for  its  enforcement. 
He  can  always  use  his  infancy  as  a  shield.  Second.  If  the  contract 
has  been  wholly  or  partly  performed  on  his  part,  but  is  wholly 
executory  on  part  of  the  other  party,  the  minor  having  received  no 
benefits  from  it,  he  may  recover  back  what  he  has  paid  or  parted 
with.  Third.  Where  the  contract  has  been  wholly  or  partly  per- 
formed on  both  sides,  the  infant  may  always  rescind,  and  recover 
back  what  he  has  paid,  upon  restoring  what  he  has  received.  Fourth. 
A  minor,  on  arriving  at  full  age,  may  avoid  a  conveyance  of  his  real 
estate  without  being  required  to  place  the  grantee  in  statu  quo., 
although  a  different  rule  has  sometimes  been  adopted  by  courts  of 
equity  when  the  former  infant  has  applied  to  them  for  aid  in  avoid- 
ing his  deeds.  Whether  this  distinction  between  conveyances  of 
real  property  and  personal  contracts  is  founded  on  a  technical  rule, 
or  upon  considerations  of  policy  growing  out  of  the  difference 
between  real  and  personal  property,  it  is  not  necessary  here  to  con- 
sider. Fifth.  Where  the  contract  has  been  wholly  or  partly  per- 
formed on  both  sides,  the  infant,  if  he  sues  to  recover  back  what 
he  has  paid,  must  always  restore  what  he  has  received,  in  so  far  as 
he  still  retains  it  in  specie.  Sixth.  The  courts  will  always  grant  an 
infant  relief  where  the  other  party  has  been  guilty  of  fraud  or  undue 
influence.  As  to  what  would  constitute  a  sufficient  ground  for 
relief  under  this  head,  and  what  relief  the  courts  would  grant  in  such 
cases,  we  will  refer  to  hereafter. 

But  suppose  that  the  contract  is  free  from  all  elements  of  fraud, 
unfairness,  or  over-reaching,  and  the  infant  has  enjoyed  the  benefits 
of  it,  but  has  spent  or  disposed  of  what  he  has  received,  or  the 
benefits  received  are,  as  in  this  case,  of  such  a  nature  that  they 
cannot  be  restored.  Can  he  recover  back  what  he  has  paid?  It  is 
well  settled  in  England  that  he  cannot.  This  was  held  in  the  lead- 
ing case  of  Holmes  v.  Blogg,  8  Taunt.  508,  approved  as  late  as  1890 
in  Valentini  v.  Canali,  24  Q.  B.  Div.  166.     Some  obiter  remarks  of 


PARTIES   TO    THE   CONTRACT.  2$ 

the  chief  justice  in  Holmes  v.  Blogg,  to  the  effect  that  an  infant 
could  never  recover  back  money  voluntarily  paid,  were  too  broad, 
and  have  often  been  disapproved,  — a  fact  which  has  sometimes  led 
to  the  erroneous  impression  that  the  case  itself  has  been  overruled. 
Corpe  v.  Overton,  lo  Bing.  252  (decided  by  the  same  court),  held 
that  the  infant  might  recover  back  what  he  had  voluntarily  paid, 
but  on  the  ground  that  the  contract  in  that  case  remained  wholly 
executory  on  part  of  the  other  party,  and  hence  the  infant  had  never 
enjoyed  its  benefits.  In  Chitty  on  Contracts  (volume  i,  p.  222), 
the  law  is  stated  in  accordance  with  the  decision  in  Holmes  v.  Blogg. 
Leake,  — a  most  accurate  writer,  — in  his  work  on  Contracts  (page 
553),  sums  up  the  law  to  the  same  effect.  In  this  country,  Chan- 
cellor Kent  (2  Kent,  Comm.  240),  and  Reeves  in  his  work  on 
Domestic  Relations  (chapters  2  and  3,  tit.  "  Parent  and  Child  "), 
state  the  law  in  exact  accordance  with  what  we  may  term  the 
"  English  rule.''  Parsons,  in  his  work  on  Contracts  (volume  i,  p. 
322),  undoubtedly  states  the  law  too  broadly,  in  omitting  the  quali- 
fication, "  and  enjoys  the  benefit  of  it." 

At  least  a  respectable  minority  of  the  American  decisions  are  in 
full  accord  with  what  we  have  termed  the  "  English  rule."  See, 
among  others,  Riley  v.  Mallory,  ■i^'i,  Conn.  206;  Adams  v.  Beall,  67 
Md.  53,  8  Atl.  664;  Breed  V.  Judd,  i  Gray,  455.  But  many  —  per- 
haps a  majority  —  of  the  American  decisions,  apparently  thinking 
that  the  English  rule  does  not  sufficiently  protect  the  infant,  have 
moiified  it;  and  some  of  them  seem  to  have  wholly  repudiated  it, 
and  to  hold  that  although  the  contract  was  in  all  respects  fair  and 
reasonable,  and  the  infant  had  enjoyed  the  benefits  of  it,  yet  if  the 
infant  had  spent  or  parted  with  what  he  had  received,  or  if  the 
benefits  of  it  were  of  such  a  nature  that  they  could  not  be  restored, 
still  he  might  recover  back  what  he  had  paid.  The  problem  with 
the  courts  seems  to  have  been,  on  the  one  hand,  to  protect  the 
infant  from  the  improvidence  incident  to  his  youth  and  inexperi- 
ence, and  how,  on  the  other  hand,  to  compel  him  to  conform  to  the 
principles  of  common  honesty.  The  result  is  that  the  American 
authorities  —  at  least  the  later  ones  —  have  fallen  into  such  a  condi- 
tion of  conflict  and  confusion  that  it  is  difficult  to  draw  from  them 
any  definite  or  uniform  rule. 

The  dissatisfaction  with  what  we  have  termed  the  "  English  rule  " 
seems  to  be  generally  based  upon  the  idea  that  the  courts  would  not 
grant  an  infant  relief,  on  the  ground  of  fraud  or  undue  influence, 
except  where  they  would  grant  it  to  an  adult  on  the  same  grounds, 
and  then  only  on  the  same  conditions.  Many  of  the  cases,  we 
admit,  would  seem  to  support  this  idea.     If  such  were  the  law,  it 


26  FORMATION  OF  THE  CONTRACT. 

is  obvious  that  there  would  be  many  cases  where  it  would  furnish 
no  adequate  protection  to  the  infant.  Cases  may  be  readily  imag- 
ined where  an  infant  may  have  paid  for  an  article  several  times 
more  than  it  was  worth,  or  where  the  contract  was  of  an  improvi- 
dent character,  calculated  to  result  in  the  squandering  of  his  estate, 
and  that  fact  was  known  to  the  other  party;  and  yet  if  he  was  an 
adult  the  court  would  grant  him  no  relief,  but  leave  him  to  stand 
the  consequences  of  his  own  foolish  bargain.  But  to  measure  the 
right  of  an  infant  in  such  cases  by  the  same  rule  that  would  be 
applied  in  the  case  of  an  adult  would  be  to  fail  to  give  due  weight 
to  the  disparity  between  the  adult  and  the  infant,  or  to  apply  the 
proper  standard  of  fair  dealing  due  from  the  former  to  the  latter. 
Even  as  between  adults,  when  a  transaction  is  assailed  on  the  ground 
of  fraud,  undue  influence,  etc.,  their  disparity  in  mtelligence  and 
experience,  or  in  any  other  respect  which  g'ves  one  an  ascendency 
over  the  other,  or  tends  to  prevent  the  latter  from  exercising  an 
intelligent  and  unbiased  judgment,  is  always  a  most  vital  considera- 
tion with  the  courts.  Where  a  contract  is  improvident  and  unfair, 
courts  of  equity  have  frequently  inferred  fraud  from  the  mere  dis- 
parity of  the  parties.  If  this  is  true  as  to  adults,  the  rule  ought 
certainly  to  be  applied  with  still  greater  liberality  in  favor  of  infants, 
whom  the  law  deems  so  incompetent  to  care  for  themselves  that  it 
holds  them  incapable  of  binding  themselves  by  contract,  except  for 
necessaries.  In  view  of  this  disparity  of  the  parties,  thus  recog- 
nized by  law,  every  one  who  assumes  to  contract  with  an  infant 
should  be  held  to  the  utmost  good  faith  and  fair  dealing.  We 
further  think  that  this  disparity  is  such  as  to  raise  a  presumption 
against  the  fairness  of  the  contract,  and  to  cast  upon  the  other 
party  the  burden  of  proving  that  it  was  a  fair  and  reasonable  one, 
and  fr'='e  from  any  fraud,  undue  influence,  or  overreaching. 

A  similar  principle  applies  to  all  the  relations,  where,  from  dis- 
parity of  years,  intellect,  or  knowledge,  one  of  the  parties  to  the 
contract  has  an  ascendency  which  prevents  the  other  from  exercis- 
ing an  unbiased  judgment, — as,  for  example,  parent  and  child, 
husband  and  wife,  guardian  and  ward.  It  is  true  that  the  mere 
fact  that  a  person  is  dealing  with  an  infant  creates  no  "  fiduciary 
relation  "  between  them,  in  the  proper  sense  of  the  term,  such  as 
exists  between  guardian  and  ward;  but  we  think  that  he  who  deals 
with  ah  infant  should  be  held  to  substantially  the  same  standard  of 
fair  dealing,  and  be  charged  with  the  burden  of  proving  that  the 
contract  was  in  all  respects  fair  and  reasonable,  and  not  tainted 
with  any  fraud,  undue  influence,  or  overreaching  on  his  part.  Of 
tourse,  in  this  as  in  all  other  cases,  the  degree  of  disparity  between 


PARTIES   TO   THE   CONTRACT.  2/ 

the  parties,  in  age  and  mental  capacity,  would  be  an  important  con- 
sideration. Moreover,  if  the  contract  was  not  in  all  respects  fair 
and  reasonable,  the  extent  to  which  the  infant  should  recover  would 
depend  on  the  nature  and  extent  of  the  element  of  unfairness  which 
characterized  the  transaction. 

If  the  party  dealing  with  the  infant  was  guilty  of  actual  fraud  or 
bad  faith,  we  think  the  infant  should  be  allowed  to  recover  back  all 
he  had  paid,  without  making  restitution,  except,  of  course,  to  the 
extent  to  which  he  still  retained  in  specie  what  he  had  received. 
Such  a  case  would  be  a  contract  essentially  improvident,  calculated 
to  facilitate  the  squandering  the  infant's  estate,  and  which  the  other 
party  knew  or  ought  to  have  known  to  be  such,  for  to  make  such  a 
contract  at  all  with  an  infant  would  be  fraud.  But  if  the  contract 
was  free  from  any  fraud  or  bad  faith,  and  otherwise  reasonable, 
except  that  the  price  paid  by  the  infant  was  in  excess  of  the  value 
of  what  he  received,  his  recovery  should  be  limited  to  the  differ- 
ence between  what  he  paid  and  what  he  received.  Such  cases  as 
Medbury  v.  Watrous^  7  Hill,  no;  Sparman  v.  Keim^  83  N.  Y.  245; 
and  Heath  v.  Stevens,  48  N.  H.  251,  — really  proceed  upon  this  prin- 
ciple, although  they  may  not  distinctly  announce  it.  The  objec- 
tions to  this  rule  are,  in  our  opinion,  largely  imaginary,  for  we  are 
confident  that  in  practice  it  can  and  will  be  applied  by  courts  and 
juries  so  as  to  work  out  substantial  justice. 

Our  conclusion  is  that  where  the  personal  contract  of  an  infant, 
beneficial  to  himself,  has  been  wholly  or  partly  executed  on  both 
sides,  but  the  infant  has  disposed^of  jyhat  he  has  received,  or  the 
benefits  recovered  by  him  are  such  that  the}'  cannot  be  restored,  he 
cannot  recover  back  what  he  has  paid,  if  the  contract  was  a  fair  and 
reasonable  one,  and  free  from  any  fraud  or  bad  faith  on  part  of  the 
other  party,  but  that  the  burden  is  on  the  other  party  to  prove  that 
such  was  the  character  of  the  contract;  that,  if  the  contract  involved 
the  element  of  actual  fraud  or  bad  faith,  the  infant  may  recover  all 
he  paid  or  parted  with,  but  if  the  contract  involved  no  such  ele- 
ments, and  was  otherwise  reasonable  and  fair,  except  that  what  the 
infant  paid  was  in  excess  of  the  value  of  what  he  received,  his 
recovery  should  be  limited  to  such  excess.  It  seems  to  us  that  this 
will  sufficiently  protect  the  infant,  and  at  the  same  time  do  justice 
to  the  other  party.  Of  course,  in  speaking  of  contracts  beneficial 
to  the  infant,  we  refer  to  those  that  are  deemed  such  in  contempla- 
tion of  law. 

Applying  these  rules  to  the  case  in  hand,  we  add  that  life  insur- 
ance in  a  solvent  company,  at  the  ordinary  and  usual  rates,  for  an 
amount  reasonably  commensurate  with   the   infant's  estate,  or  his 


28  FUKMATION    OF   THE   CONTRACT. 

financial  ability  to  carry  it,  is  a  provident,  fair,  and  reasonable  con- 
tract, and  one  which  it  is  entirely  proper  for  an  insurance  company 
to  make  with  him,  assuming  that  it  practices  no  fraud  or  other 
unlawful  means  to  secure  it;  and  if  such  should  appear  to  be  the 
character  of  this  contract  the  plaintiff  could  not  recover  the  premi- 
ums which  he  has  paid  in,  so  far  as  they  were  intended  to  cover  the 
current  annual  risk  assumed  by  the  company  under  its  policy.  But 
it  appears  from  the  face  of  the  policy  that  these  premiums  covered 
something  more  than  this.  The  policy  provides  that  after  payment 
of  three  or  more  annual  premiums  the  insured  will  be  entitled  to  a 
paid-up,  non-participating  policy  for  as  many  twentieths  of  the  origi- 
nal sum  insured  ($i,ooo)  as  there  have  been  annual  premiums  so 
paid.  The  complaint  alleges  the  payment  of  four  annual  premiums. 
Hence,  the  plaintiff  was  entitled,  upon  surrender  of  the  original 
policy,  to  a  paid-up,  non-participating  policy  for  $200;  and  it  there- 
fore seems  to  us  that,  having  elected  to  rescind,  he  was  entitled  to 
recover  back,  in  any  event,  the  present  cash  "  surrender  "  value  of 
such  a  policy.  For  this  reason,  as  well  as  that  the  burden  was  on 
the  defendant  to  prove  the  fair  and  honest  character  of  the  contract, 
the  demurrer  to  the  complaint  was  properly  overruled.  The  result 
arrived  at  in  the  former  opinion  was  therefore  correct,  and  is 
adhered  to,  although  on  somewhat  different  grounds. 

Order  affirmed.' 

Buck,  J.,  absent.     Gilfillan,  Ch.  J.,  concurs  in  result. 


IN  THE  MATTER  OF  THE  GLOBE  MUTUAL  BENEFIT 
ASSOCIATION. 

135  N.  Y.  280.  —  1892 

Andrews,  J.  —  The  order  from  which  this  appeal  is  taken  enjoins 
the  defendant,  a  co-operative  life  and  casualty  insurance  association 
organized  under  the  act,  chapter  175  of  the  Laws  of  1883,  entitled 
"  An  act  to  provide  for  the  incorporation  and  regulation  of  co-ope- 
rative or  assessment  life  and  casualty  insurance  associations  and 
societies,"  from  transacting  the  business  of  infantile  insurance. 
The  order  proceeds  on  the  ground  that  the  insurance  of  infants  is 
not  within  the  powers  of  corporations  organized  under  this  statute 

'  Insurance  of  an  infant's  property  against  fire  is  not  a  necessary  and  his  con- 
tract therefor  is  not  binding  but  voidable.  New  Hampshire  Mut.  Fire  Ins.  Co. 
V.  Noyes,  32  N.  H.  345. 


PARTIES   TO   THE    CONTRACT.  29 

and  is  inconsistent  with  the  statutory  scheme  and  the  legislative 
intention. 

The  by-laws  of  the  defendant  provide  that  any  persons  between 
the  ages  of  six  months  and  seventy  years,  approved  by  the  medical 
director,  may  become  a  member  of  the  society.  The  applicant,  if 
approved,  is  entitled  to  a  certificate  of  membership,  and  on  paying 
an  entrance  fee  and  a  certain  sum  weekly  during  life,  the  company 
undertakes  to  pay  at  his  death  to  a  beneficiary  designated  by  the 
member,  or  to  the  next  of  kin  if  no  beneficiary  is  named,  a  certain 
sum  called  a  benefit,  provided  there  is  a  fund  realized  from  volun- 
tary donations,  admission  fees  and  dues  collected,  or  which  may  be 
collected  from  members,  out  of  which  such  payment  can  be  made. 

There  are  two  classes  of  members,  a  life  class  and  a  casualty 
class,  the  distinction  between  which  is  for  the  present  purpose  of 
no  importance.  It  appears  from  a  schedule  in  the  case  that  infants 
from  one  to  four  years  of  age  have  been  admitted  as  members  of 
the  corporation,  in  whose  name  certificates  of  membership  have 
been  issued  designating  a  beneficiary,  insuring  the  infant  named  in 
a  certain  sum  in  one  of  the  classes  mentioned. 

The  first  section  of  the  act  of  1883  authorizes  any  number  of  per- 
sons not  less  than  nine,  residents  of  the  state,  to  associate  them- 
selves together  to  organize  a  corporation  thereunder.  The  second 
section  prescribes  that  the  associates  shall  file  in  the  office  of  the 
superintendent  of  the  insurance  department  a  declaration  of  their 
intention  to  form  a  company  under  the  act,  containing  several  par- 
ticulars specified,  to  be  signed  and  acknowledged  by  each  of  the 
corporators.  By  the  third  section,  upon  the  completion  of  the 
organization,  it  is  declared  that  "  said  corporators  and  those  that 
may  thereafter  become  associated  with  them  or  their  saccessors, 
shall  be  constituted  a  body  politic  and  corporate."  The  fourth  sec- 
tion authorizes  the  making  of  by-laws.  The  fifth  section  declares 
that  corporations  organized  under  the  act,  issuing  certificates  pay- 
able on  the  decease  of  a  member  or  upon  his  sickness  or  other 
physical  disability,  or  to  a  beneficiary,  from  resources  derived  from 
voluntary  donations  or  admission  fees,  dues  or  assessments  collected 
from  members,  and  whose  payment  is  conditional  upon  means  so 
realized,  etc.,  shall  be  deemed  to  be  engaged  in  the  business  of  life 
or  casualty  insurance  upon  the  co-operative  or  assessment  plan  and 
"  shall  be  subject  only  to  the  provisions  of  the  act."  The  sixteenth 
section  provides  for  the  holding  of  an  annual  meeting  of  the  mem- 
bers or  policy-holders  of  the  corporation,  with  a  notice  of  the  time 
and  place  when  and  where  the  same  will  be  considered.  The 
eighteenth  section  authorizes  a  member  to  change  the  beneficiary 


30  FORMATION    OK   THE    CONTRACT, 

with  the  consent  of  the  corporation,  and  without  the  consent  of  the 
beneficiary. 

The  defendant  was  a  co-operative  association  under  the  act,  a 
continuing  membership  in  which  is  made  dependent  on  the  member 
keeping  up  his  dues.  Each  holder  of  a  certificate  is  by  virtue 
thereof  a  member  and  corporator  of  the  association,  and  so  remains 
until  by  nonpayment  of  dues  his  membership  is  forfeited.  The 
statute  contemplates  a  meeting  of  the  associates  in  annual  meeting, 
at  which  reports  of  receipts  and  expenditures  are  to  be  submitted, 
and  the  associates  assembled  at  a  meeting  duly  notified,  are  to  con- 
sider and  pass  upon  by-laws  or  amendments  proposed  for  adoption. 

It  is  plain  that  the  powers  conferred  upon  members  cannot  be 
exercised  by  children  of  tender  years,  such  as  have  been  permitted 
to  become  members  of  the  corporation  defendant.  The  children 
insured  by  the  defendant,  whose  ages  are  given  in  the  schedule, 
were  incapable  of  exercising  any  choice  in  becoming  members,  or 
of  appointing  a  beneficiary,  or  of  exercising  the  powers  with  which 
members  are  invested  by  the  statute.  They  could  take  no  part  in 
the  co-operative  scheme  upon  which  the  corporation  rests,  and 
which  implies  the  voluntary  association  of  persons  capable  of  acting 
in  the  administration  of  the  affairs  of  the  corporation.  There  is 
nothing  in  the  statute  which  permits  the  inference  that  a  child  may 
be  made  a  member  of  the  corporation  upon  the  application  of  the 
parent,  or  that  a  beneficiary  may  be  designated  or  changed  by  any 
person  except  the  member  himself. 

It  has  been  held  that  where  a  statute  authorizes  persons  to  form 
a  corporation,  it  is  implied  that  they  shall  be  persons  of  full  age. 
Hamilton  6^  Flamborough  Road  Co.  v.  Townsend^  13  Ont.  App.  R. 
534;  16  Am.  &  Eng.  Corp.  Cas.  645.  Infants  admitted  as  members 
by  the  defendant  became  members  of  the  corporation,  if  legally 
entitled  to  admission,  and  may  be  elected  trustees  or  directors, 
and  it  might  happen  Ihat  the  management  of  the  affairs  of  the 
corporation  would  become  vested  in  persons  who  could  not  have 
organized  it. 

We  place  our  assent  to  the  judgment  below  on  the  ground  that  it 
appears  from  a  consideration  of  the  statute  of  1883,  and  the  nature 
and  object  of  co-operative  insurance  companies,  and  the  relation 
which  members  hold  to  the  corporation,  that  adult  persons  only 
were  contemplated  as  entitled  to  membership.  The  law  fixes  an 
arbitrary  period  when  persons  become  clothed  with  general  legal 
capacity,  and  while  in  many  cases  youths  under  twenty-one  are 
capable  of  exercising  an  intelligent  judgment  and  might  properly 
be  admitted  to  the  advantage  of  membership  in  a  company  like  that 


PARTIES   TO   THE   CONTRACT.  3I 

of  the  defendant,  in  many  others  they  would  be  wholly  unfitted  to 
act  as  members  of  such  an  organization. 

We  think  the  order  below  is  right  and  it  should  be  affirmed. 

All  concur,  except  O'Brien  and  Maynard,  JJ.,  not  sitting. 

Order  affirmed.' 


b.  Copporations. 

STATE  EX  REL.  V.  ACKERMAN  et  al.2 
51  Ohio  St.  163.  —  1894. 

Quo  WARRANTO  by  the  State,  on  the  relation  of  the  Attorney-Gen- 
eral, against  C.  F.  Ackerman  and  ninety-nine  others.  Defendants 
demur.      Demurrer  overruled,  and  judgment  of  ouster. 

The  petition  is  filed  against  C.  F.  Ackerman  and  ninety-nine  other 
persons,  who  are  transacting  the  business  of  guaranty  and  accident 
insurance  in  this  State,  under  the  name  of  the  "  Guarantee  and 
Accident  Lloyds,  New  York,"  to  oust  them  from  the  carrymg  on  of 
that  business,  because  they  have  not  complied  with  the  laws  of  the 
State,  or  received  any  authority  from  it  to  do  a  business  of  that 
kind. 

Williams,  J.  — The  action  of  quo  warranto  may  be  maintained, 
under  our  statute,  (i)  against  a  person  who  unlawfully  exercises  a 
franchise,  and  (2)  against  an  association  of  persons  who  act  as  a 
corporation  within  the  State  without  being  legally  incorporated; 
and  the  present  action  is  prosecuted  on  both  of  these  grounds.  The 
position  taken  in  support  of  the  demurrer  is  that  the  defendants,  in 
transacting  the  business  of  insurance  in  the  manner  alleged  in  the 
petition,  do  not  exercise  a  franchise,  or  act  as  a  corporation,  but 
are  pursuing,  as  individuals,  an  occupation  in  which  any  person  may 
of  natural  and  common  right  engage;  which  right,  it  is  contended, 
cannot  be  abridged  or  controlled  by  legislation,  and  hence  the 
defendants  are  not  subject  to  the  conditions  and  regulations  imposed 
by  the  laws  of  the  State  on  companies  and  associations  doing  an 
insurance  business.  Insurance,  in  its  early  existence,  when  the 
nature  of  the  risks  assumed  were  few,  and  the  amount  of  business 
small,  was  done  chiefly,  if  not  entirely,  by  individuals.  But  in  more 
recent  times   it   has  been  extended  until  it  embraces  almost  every 

'  But  see  Chicago  Mutual  Life  Assoc,  v.  Htint,  127  111.  257,  where  it  was  held 
that  the  admission  of  minors  to  membership  was  not  sufficient  ground  for  dis- 
solving the  association. 

'  This  case  also  serves  to  illustrate  generally  the  extent  and  nature  of  State 
conirol  over  insurance  business. 


32  FORMATION  OF  THE  CONTRACT. 

kind  of  risk,  and  has  grown  to  such  proportions  that  it  enters  into 
every  department  of  business,  and  affects  all  classes  of  people,  and 
their  property;  and  has,  in  consequence,  everywhere  become  the 
subject  of  legislative  regulation  and  control.  The  several  States 
have  enacted  laws  designed  to  place  the  business,  within  their  limits, 
on  such  substantial  basis  as  will  afford  adequate  protection  to  the 
citizens  and  their  property.  There  can  be  no  doubt  of  the  power 
of  the  State  to  do  so;  nor  that  the  power  extends  to  the  enactment 
of  such  laws  as  its  legislative  body  may  deem  wise  and  proper  for 
the  purpose,  not  in  conflict  with  the  fundamental  law;  and  there- 
fore, within  the  legitimate  exercise  of  that  power,  foreign  com- 
panies may  be  excluded  altogether  from  doing  business  in  the  State, 
or  admitted  on  their  compliance  with  such  terms  and  conditions  as 
its  Legislature  chooses  to  impose.  There  has  been  enacted  in  this 
State  an  extensive  code  or  system  of  laws,  covering  the  whole  sub- 
ject of  insurance,  regulating  the  incorporation  and  organization  of 
companies  and  associations  for  the  transactions  of  the  various  kinds 
of  insurance,  and  prescribing  their  powers  and  duties,  defining  the 
scope  and  effect  of  their  policies,  and  otherwise  regulating  their 
business.  They  are  required,  as  a  means  of  protection  of  those  who 
deal  with  them,  to  deposit  adequate  securities,  and  invest  their 
capital  and  earnings  in  designated  modes,  in  the  State,  make  peri- 
odical reports  of  their  financial  condition  and  business  affairs,  submit 
to  visitations,  and  examinations  of  their  affairs,  by  a  public  officer 
charged  with  the  duty  of  enforcing  the  insurance  laws,  and  comply 
with  other  specified  requirements;  a  compliance  with  all  of  which, 
by  companies  and  associations  organized  in  the  State,  is  essential  to 
their  right  to  carry  on  the  business.  Foreign  companies,  before 
doing  business  in  the  State,  are  required  to  conform  to  the  same 
regulations,  and  others  peculiarly  applicable  to  them;  among  which 
latter  are  those  which  prohibit  any  "  insurance  company,  associa- 
tion, or  partnership,  incorporated,  organized,  or  associated  under 
the  laws  of  any  other  of  the  United  States,  or  of  any  foreign  gov- 
ernment," from  doing  an  insurance  business  "  in  this  State,  until  it 
procures  from  the  superintendent  a  certificate  of  authority  to  do 
so,"  and  forbid  any  person  or  corporation  to  "  act  as  agent  in  this 
State  for  any  such  company,  association,  or  partnership,  directly  or 
indirectly,  either  in  procuring  applications  for  insurance,  taking 
risks,  or  in  any  manner  transacting  the  business  of  insurance,  until 
it  procures  from  the  superintendent  a  license  to  do  so,  stating  that 
the  company,  association,  or  partnership  has  complied  with  ail  the 
requirements  of  "  the  insurance  laws  "  applicable  to  such  company, 
and  depositing  a  certified  copy  of  such  license  in  the  office  of  the 


PARTIES   TO    THE   CONTRACT.  33 

recorder  of  the  county  in  which  the  office  or  place  of  business  of 
such  agent  or  agents  is  established."     Rev.  St.  §  3656. 

The  chapter  of  the  Revised  Statutes  which  establishes  the  depart- 
ment of  insurance,  and  places  it  under  the  management  of  the 
Superintendent,  provides,  among  other  things,  that  that  officer  shall 
be  appointed  by  the  Governor,  by  and  with  the  advice  and  consent 
of  the  Senate.  He  holds  his  office  for  a  fixed  period,  and  is  paid  a 
stated  salary;  he  is  provided  with  an  office  in  the  state-house,  and 
is  specifically  charged  with  the  duty  of  seeing  to  the  execution  and 
enforcement  of  all  laws  relating  to  insurance.  He  is  authorized  to 
investigate  the  business  and  affairs  of  all  insurance  companies, 
whether  foreign  or  domestic,  and  employ  skilled  and  competent 
persons  to  assist  him.  It  is  made  his  duty  when  he  has  reason  to 
suspect  that  the  affairs  of  any  company  are  in  an  unsound  condi- 
tion, to  cause  them  to  be  investigated,  and  its  officers  and  agents 
are  required  to  submit  themselves  to  examination  under  oath,  and 
their  books  and  business  to  his  inspection,  and  in  every  other  way 
facilitate  the  investigation;  and,  when  satisfied  the  company  is  in 
an  unsound  condition,  his  duty  is  to  revoke  its  authority  to  do  busi- 
ness, and  from  his  decision  there  is  no  appeal.  State  v.  Moore.  42 
Ohio  St.  103.  He  must  keep  a  record,  and  preserve  in  permanent 
form  his  proceedings,  including  a  concise  statement  of  the  condi- 
tions of  each  company,  and  make  reports  to  the  Legislature  of  the 
conduct  and  condition  of  each  company  doing  business  within  the 
State,  with  such  suggestions  as  he  may  deem  expedient.  In  short, 
his  department  is  a  branch  of  the  State  government,  and  his  func- 
tions are  derived  from  the  State,  and  exercised  in  the  public  inter- 
est. Every  insurance  company,  before  commencing  business,  is 
required  to  pay  into  the  department  certain  fees  and  charges  for 
filing  its  charter,  and  others  for  filing  its  preliminary  statement  for 
admission,  and  for  its  certificate  of  authority  to  do  business,  and 
for  licenses  to  its  agents;  and,  after  the  company  commences  busi- 
ness, it  "  shall  publish,  at  least  once  a  year,  in  some  newspaper  of 
general  circulation,  in  every  county  where  such  company  has  an 
agent,  a  certificate  from  the  superintendent  of  insurance  that  such 
company  has,  in  all  respects,  complied  with  the  laws  of  the  State 
relating  to  insurance."  It  is  made  unlawful  for  any  person,  com- 
pany, or  corporation  not  licensed  by  the  Superintendent  of  Insur- 
ance to  receive  or  forward  applications  for  insurance  in  any  foreign 
company,  or  in  any  manner  aid  in  the  transaction  of  its  business; 
and  severe  penalties  are  attached  to  the  violation  of  any  of  the  pro- 
visions of  the  chapter  which  provides  for  the  appointment  of  the 
Superintendent,  including  those  already  pointed   out,  all   of   which 

LAW  OF  INSURANCE  —  '\ 


34  FORMATION    OF   THE   CONTRACT. 

are  made  applicable,  expressly,  "  to  individuals  and  parties,  and  to 
all  companies  and  associations,  whether  incorporated  or  not,  now 
or  hereafter  engaged  in  the  business  of  insurance;  "  and  it  is  fur- 
ther made  unlawful  for  any  "  company,  corporation,  or  association, 
whether  organized  in  this  State  or  elsewhere,  either  directly  or  indi- 
rectly, to  engage  in  the  business  of  insurance,  or  to  enter  into  any 
contracts  substantially  amounting  to  insurance,  or  in  any  manner 
to  aid  therein,  in  this  State,  without  first  having  complied  with  all 
the  provisions  of  this  chapter."  Rev.  St.  §  289.  These  are  some 
of  the  many  statutory  prcisions,  showing  the  extent  to  which  the 
State  has  taken  control  of  the  business  of  insurance.  They  are 
reasonable  and  just,  and  were  adopted  for  the  laudable  purpose  of 
protecting  the  public  against  imposition  by  unreliable  and  untrust- 
worthy companies  and  associations.  Compliance  with  them  is  made 
the  condition  upon  which  foreign  companies  and  associations  are 
allowed  to  transact  the  business  of  insurance  within  the  State. 
There  is  not  such  compliance  utitil  the  company  or  association  has 
obtained  from  the  Superintendent  of  Insurance  the  necessary  certifi- 
cate of  authority,  and  licenses  to  its  agents.  Companies  and  associ- 
ations that  have  not  received  such  certificate  are  denied  the  privi- 
lege of  doing  business  here.  The  certificate  of  authority  so  granted 
by  the  Superintendent,  so  long  as  it  remains  in  force,  confers  on  the 
company  or  association  receiving  it  the  right  and  privilege  of  car- 
rying on  its  business  of  insurance  in  the  State.  The  authority 
emanates  from  the  State,  and  the  privilege  granted  is  a  franchise. 
The  author  of  a  recent  and  well  prepared  work,  treating  of  this 
subject,  says:  "  Where  by  statute  the  legal  exercise  of  a  right, 
which  at  common  law  was  private,  is  made  to  depend  upon  compli- 
ance with  conditions  interposed  for  the  security  and  protection  of 
the  public,  the  necessary  inference  is  that  it  is  no  longer  private, 
but  has  become  a  matter  of  public  concern,  —  that  is,  a  franchise, 
the  assumption  and  exercise  of  which,  without  complying  with  the 
conditions  prescribed,  would  be  a  usurpation  of  a  public  or  sover- 
eign function.  In  this  case  the  Legislature  has  done  no  more  than 
was  done  by  the  court  in  the  other  instance,  when  it,  from  con- 
siderations of  a  public  nature,  declared,  as  a  principle  of  the  com- 
mon law,  that  facts  brought  to  its  notice,  or  of  which  it  then  took 
judicial  notice,  warranted  the  application  of  principles  existing 
independently  of  the  legislative  declaration  to  the  effect  that  the 
right  claimed  was  matter  of  public,  and  not  exclusively  of  private, 
concern."  Spelling,  Extraordinary  Relief,  §  1807.  The  same  author 
further  says:  "  There  was  no  class  of  business  the  transaction  of 
which,  as  a  matter  of  private  right,  was  better  recognized  at  common 


PARTIES   TO   THE   CONTRACT.  35 

law  than  that  of  making  contracts  of  insurance  upon  the  lives  of  indi- 
viduals. But  now,  by  statute,  in  almost,  if  not  quite,  all  the  States, 
stringent  requirements  as  to  security  of  the  persons  dealing  with 
insurers,  and  the  making  and  filing  reports  with  public  officers  for 
public  information,  are  provided,  and  must  be  strictly  observed  and 
complied  with  before  any  person,  association,  or  corporation  may 
make  any  contract  of  life  insurance.  The  effect  of  such  statute  is 
to  make  that  a  franchise  which  previously  had  been  a  matter  purely 
of  private  right."     Id.  §  1808. 

It  is  claimed,  however,  that  the  laws  of  Ohio  do  not  apply 
to  the  defendants,  because  they  are  not  an  organized  corpor.  - 
tion,  company,  or  association,  or  acting  as  such,  but  that,  i,i 
making  contraqts  of  insurance,  each  individual  acts  for  himself. 
A  careful  consideration  of  their  plan  of  business,  as  shown  by 
the  articles  of  agreement  and  powers  of  attorney  executed  by 
the  defendants,  has  bought  us  to  a  different  conclusion.  They 
have  associated  themselves  together,  in  a  business  undertaking, 
under  a  company  name,  in  which,  viz.:  "  Guarantee  and  Accident 
Lloyds,  New  York,"  all  of  their  policies  are  issued.  Each  sub- 
scriber to  the  artick-s  has  contributed  an  equal  amount  to  the  capi- 
tal stock  of  the  concern,  which  is  placed  in  the  control  of  a  board 
of  managers,  called  an  advisory  committee,  to  meet  losses  arising 
on  the  policies.  This  board  of  managers  is  chosen  by  the  subscrib- 
ers, like  the  directors  of  a  corporation,  and  invested  with  powers 
quite  as  plenary.  All  the  subscribers  have  executed  powers  of 
attorney  to  the  same  individuals,  investing  them  with  the  business 
management  of  the  insurance,  under  the  supervision  of  the  advisory 
board.  The  powers  conferred  on  the  attorneys  in  fact  are  anal- 
ogous to  those  of  the  executive  officers  of  a  corporation.  They 
execute  the  policies,  keep  accounts  of  the  business  and  expenses, 
which  are  open  to  the  inspection  of  the  advisory  board,  adjust  all 
losses,  and  prosecute  and  defend  all  suits  growing  out  of  the  busi- 
ness. Each  member  of  the  association  stipulates  with  the  others 
that  no  policy  shall  be  issued  unless  it  is  executed  in  behalf  of 
all,  and  yet  that  his  liability  shall  be  several  only,  and  limited 
to  the  amount  contributed  to  the  fund,  or  authorized  by  him; 
so  that,  if  some  of  the  members  become  insolvent,  and  their 
contribution  is  exhausted  in  losses,  or. otherwise,  the  policy  shall 
be  enforceable  against  the  others  only  for  an  aliquot  part, 
equal  to  the  proportion  of  the  solvent  to  the  insolvent  mem- 
bers. The  liability  of  a  stockholder  of  a  corporation  is  not 
more  restricted.  Then  the  interest  of  each  member  in  the  con- 
cern is  made  transferable;    a   member  who  wishes  to  withdraw  is 


36  FORMATIUX    OF   THE   CONTRACT. 

authorized  to  procure  another  to  take  his  place,  and  the  representa- 
tive of  a  deceased  member  may  transfer  the  latter's  share  in  like 
manner,  and,  rn  that  way,  the  organization  may  be  made  as  endur- 
ing as  it  is  possible  for  any  corporation  to  be.  The  association  has 
the  appearance,  and  some  of  the  characteristics,  of  a  corporation 
formed  for  the  purpose  of  doing  a  general  insurance  business  in  its 
line,  and  its  form  of  policies  and  mode  of  conducting  its  business 
are  calculated  to  impress  one  who  does  not  make  a  critical  examina- 
tion, with  the  belief  that  it  is  a  corporation,  conforming  to  the 
usages  of  such  companies.  The  character  of  the  organization 
under  which  the  defendants  are  operating,  and  their  method  of 
business,  bring  them,  we  think,  within  the  purview  of  that  clause 
of  section  6760  of  the  Revised  Statutes  which  authorizes  an  action 
in  quo  warranto  to  be  brought  "  against  an  association  of  persons 
who  act  as  a  corporation  within  this  State  without  being  legally 
incorporated."  To  be  within  the  operation  of  that  provision,  it 
is  not  necessary  that  the  association,  or  persons  composing  it, 
avow  a  purpose  to  act  as  a  corporation;  or  assume  to  do  so;  it  is 
sufificient  that  the  acts  are  such  as  appertain  to  corporations,  or  are 
done  after  the  manner  of  corporations. 

Under  a  statutory  provision  identical  with  that  of  section  6760, 
quoted  above,  it  was  held  by  the  Supreme  Court  of  Illinois  that 
"  an  association,  or  number  of  persons,  who,  in  conducting  the 
business  of  insurance,  profess  to  limit  their  liability  to  the  amount 
of  money  contributed  by  each,  and  assume  to  give  perpetuity  to  the 
business  by  making  membership  certificates  transferable  by  the 
assignment  of  the  member,  or  his  personal  representatives,  are  '  act- 
ing as  a  corporation,'  so  as  to  authorize  a  judgment  of  ouster  in  quo 
warranto  under  Rev.  St.  111.  1874,  c.  112,  where  they  are  not  legally 
incorporated."  Greene  v.  People^  21  N.  E.  605.  The  case  is  much 
in  point;  and  we  fully  concur  in  the  doctrine  announced  by  Schol- 
field,  J.,  in  the  opinion,  where  it  is  said:  "  The  question  here  is 
whether,  under  the  facts  presented  by  this  record,  '  any  association 
or  number  of  persons  are  acting,  within  this  State,  as  a  corporation, 
without  being  legally  incorporated.'  If  they  are,  the  judgment 
below  is  authorized  by  our  statute  entitled  '  quo  warranto  '  (chapter 
112,  Rev.  St.  1874,  p.  787),  and  must  be  affirmed;  otherwise  it  must 
be  reversed.  We  think  it  clear  that,  in  two  respects  at  least,  these 
respondents  are  acting  as  a  corporation,  and  it  is  not  pretended 
that  they  are  actually  incorporated,  namely:  First,  in  professedly 
limiting  their  liability  to  the  amount  of  money  contributed  by  each; 
second,  in  assuming  to  give  perpetuity  to  the  business  by  making 
membership  certificates  transferable  by  the  assignment  of  the  mem- 


PARTIES   TO    THE    CONTRACT.  37 

ber  or  his  personal  representative.  It  may  be,  as  contended  by 
counsel,  that  individuals  may  insure  property  against  loss  by  fire. 
They  cannot  limit  their  liability  to  any  given  amount  of  capital  they 
choose  to  set  apart  for  that  purpose,  nor  can  they  perpetuate  the 
business  without  change  of  capital,  beyond  their  own  lives  indefi- 
nitely. These  things  can  only  be  done  by  a  corporation. 
Ang.  &  A.  Corp.  (9th  Ed.)  §  41 ;  2  Kent,  Comm.  (8th  Ed.)  296, 
298;  Pars.  Partn.  (2d  Am.  Ed.)  544;  Gow,  Partn.  (2d  Am. 
Ed.)  17.  The  fact  that  these  respondents  may  be  legally  held 
individually  liable  upon  any  policies  they  may  have  issued  does  not 
relieve  them  of  the  charge  of  having  acted  as  a  corporation.  They 
are,  if  individually  liable,  only  liable  because  they  have  no  statutory 
authority  to  do  what  they  have  assumed  to  do,  because,  instead  of 
being  a  corporation  in  fact,  they  have  usurped  the  powers  of  a  cor- 
poration. Were  we  to  hold  that  these  respondents  can  do,  without 
any  legislative  authority,  what  they  here  assume  to  do,  our  insur- 
ance laws  ought  to  be  repealed;  for  individuals,  then,  by  organizing 
in  this  manner,  could  escape  both  individual  and  corporate  liability 
beyond  the  amount  of  assets  they  might  choose  to  place  in  the 
hands  of  their  trustee  as  the  basis  of  their  liability.  No  public 
officer  could  investigate  whether  the  amount  is  in  fact  paid  in,  how 
it  is  invested,  or  how  secured,  and  the  public  would  thus  have  prac- 
tically no  protection  against  dishonest  companies.  These  respond- 
ents, if  they  will  carry  on  the  business  of  insurance,  must  either 
openly  act  upon  their  responsibility,  as  individuals,  or  they  must 
become  incorporated,  and  subject  themselves  to  the  laws  governing 
such  corporations.''  The  judgment  below  was  accordingly  affirmed. 
The  grounds  held  sufficient  for  ousting  the  respondents  in  that 
case  are  present  in  the  case  before  us.  The  averments  of  the  peti- 
tion sufficiently  show  that  the  defendants,  in  transacting  the  busi- 
ness of  insurance  in  this  State,  are  unlawfully  exercising  a  franchise 
within  the  State,  and  are  acting  as  a  corporation  therein,  without 
being  legally  incorporated. 

Demurrer  overruled,  and  judgment  of  ouster.' 

'  Legislative  Limitation  of  the  Insurance  Business  to  Corporations 
Only.  Such  limitation  is  declared  constitutional  in  Conunonwealih  v.  Vrootnan, 
164  Pa.  306.  The  court  concludes:  "  It  [the  act  of  1870]  does  not  prohibit  the 
business  of  insurance,  but  regulates  it.  It  says  to  all  persons  interested:  '  If 
you  wish  to  embark  in  this  business,  you  must  secure  a  charter  of  incorpora- 
tion, so  as  to  subject  your  business  to  the  visitorial  power  of  the  state.  If  you 
will  not  do  this,  you  must  not  engage  in  insurance  against  fire  at  all.'  This  is 
not  prohibition  of  the  business,  for  the  business  is  distinctly  authorized.  It  is 
an   eff  ut  to  bring  it  under  State  supervision  and  control,  by  requiring  all  who 


38  FORMATION   OF   THE   CONTRACT. 

II.  Insurable  Interest. 

a.  Insurable  Interest  in  Property. 

CREED  ET  AL.   v.   SUN   FIRE  OIFICE. 
loi  Ala.  522.  —  1593. 

Coleman,  J.  — This  is  an  action  by  appellants  upon  a  policy  of 
insurance  issued  for  the  benefit  of  plaintiffs,  insuring  a  certain 
dwelling  against  loss  or  destruction  by  fire.  The  suit  is  in  the  joint 
name  of  Katie  Creed  and  Mattie  Flinn,  the  assured.  The  defend- 
ant pleaded  several  special  pleas,  upon  some  of  which  issue  was 
joined,  and  to  the  others  a  replication  was  filed  by  plaintiffs.  The 
court  sustained  a  demurrer  to  the  replication,  and,  the  plaintiffs 
declining  to  plead  further,  judgment  was  rendered  for  the 
defendant.     *     *     * 

The  next  proposition  involves  a  question  new  in  this  State.  Ha'; 
a  creditor  an  insurable  interest  in  a  building,  the  property  of  the 
estate  of  his  deceased  debtor  which  may  be  subjected  to  his  debt, 
the  personal  property  being  insufficient  to  pay  the  debts  of  the 
estate?  After  much  deliberation,  our  conclusion  is  that  he  has  an 
interest  which  maybe  insured.  We  concede  and  affirm  that  a  simple 
contract  creditor,  without  a  lien,  either  statutory  or  contract,  with- 
out tijiis  in  re  or  dijus  ad  rem,  owning  a  mere  personal  claim  against 
his  debtor,  has   not  an    insurable   interest   in   the   property   of    his 


wish  to  enter  ihe  business  to  put  themselves  in  a  position  where  the  insurance 
legislation  of  the  State  will  reach  them,  and  the  insurance  department  of  ihe 
State  can  supervise  their  business  and  compel  observance  of  the  law.  Without 
going  further  into  the  discussion,  we  may  now  state  our  conclusions  applicable 
to  the  case  before  us:  First.  The  business  of  insurance  against  loss  by  fire  is, 
by  reason  of  its  magnitude,  its  importance  to  properly  owners,  and  the  nature 
of  the  business,  a  proper  subject  for  the  exercise  of  the  police  power  of  the 
State.  Second.  The  act  of  1870  is  a  valid  exercise  of  the  police  power.  It  does 
not  prohibit,  but  regulates,  the  business.  It  excludes  no  one  from  engaging  in 
it,  but  prescribes  the  preliminary  qualification  necessary  for  all  alike  to  entitle 
them  to  enter  the  business.  Third.  The  qualification  is  reasonable.  It  is  open 
to  all  under  general  laws.  It  is  not  burdensoine.  Its  only  effect  is  to  secure 
adequate  capital  at  the  beginning,  and  State  supervision  during  thecontinuance 
of  the  business.  Fourth.  Upon  the  special  verdict,  judgment  should  have  been 
entered  in  favor  of  the  Commonwealth,  and  sentence  should  have  been  pro- 
nounced under  the  act  of  1870.  That  this  may  now  be  done,  the  judgment  is 
reversed,  the  record  remitted,  and  a  procedendo  awarded."  Dean.  J.  (with 
whom  concur  Sterrett,  C.  J.,  and  Green,  J.),  dissents,  the  conclusion  of  his 
opinion  being  as  follows:  "  If  the  exercise  of  the  right  of  contract  to  indemnify 
be  injurious  to  the  public,  then  it  ought  to  be  prohibited;  if  beneficial,  it  ought 
not  to  be  monopolized  by  a  few     *     *     *     while  a  business  affected  by  a  public 


IN'SLRADl.E    INTEREST.  39 

debtor.  Such  contracts  are  void,  as  being  against  public  policy. 
We  do  not  think  the  principle  applies  after  the  death  of  the  debtor, 
as  to  property  liable  for  the  debt,  and  which,  if  destroyed,  will 
result  in  the  loss  of  the  debt.  The  real  estate  as  well  as  personal 
property  of  a  deceased  debtor  is  liable  for  his  debts,  but  the  real 
estate  cannot  be  subjected  to  the  payment  of  his  debts  until  after 
the  personalty  has  been  exhausted.  After  the  death  of  the  debtor 
the  debt  is  no  longer  enforceable  in  personam.  The  proceedings  to 
reach  the  property  of  the  estate  of  the  deceased  debtor  are  in  rem. 
The  property  of  the  debtor  takes  the  place  of  the  debtor,  and 
becomes,  as  it  were,  the  debtor.  Whoever  knowingly  receives  the 
property  of  a  deceased  debtor,  and  wrongfully  converts  it  is  answer- 
able to  the  creditor.  3  Brick.  Dig.  p.  464,  §  148;  Id.  p.  465,  §  162. 
The  relation  of  creditor  and  debtor  invests  the  creditor  with  an 
insurable  interest  in  the  life  of  his  debtor  to  the  extent  of  his  debt 
Alexander  v.  Sanders,  93  Ala.  345,  9  South.  521;  11  Am.  &  Eng. 
Enc.  Law.  319.  It  would  seem  upon  like  principles  that,  when  the 
property  becomes  directly  subject  to  proceedings  /;/  rem  for  the 
satisfaction  of  the  debt,  the  creditor  should  become  invested  with 
an  insurable  interest  in  the  property.  Certainly,  if  a  creditor  can- 
not obtain  satisfaction  of  his  debt  from  the  personal  property  of  his 
deceased  debtor,  and  has  a  legal  right,  which  cannot  be  defeated, 
to  enforce  its  collection  by  proceedings  /;/  rem  against  a  building 
belonging   to   the   estate   of   the  deceased   debtor,  and  if  it  be  true 


interest  may  be  regulated,  yet  when  not  inimical  to  the  health,  morals,  or  safety 
of  the  people,  it  cannot  be  prohibited.  I  do  not  think  an  exclusive  grant  to  a 
class  is  regulation.  That  is  prohibition  of  all  others,  and  is  therefore  unconsti- 
tutional." 

Retaliatory  Legislation.  Some  States  have  legislative  acts  providing  in 
substance  that  an  insurance  corporation  of  another  Stale  seeking  to  do  business 
in  such  Stales  shall  pay  for  taxes,  fees,  etc.,  an  amount  equal  to  that  imposed  by 
the  State  of  its  origin,  upon  insurance  corporations  of  such  other  States.  In  New 
York  this  legislation  was  held  constitutional  when  attacked  upon  the  ground 
that  (i)  it  was  an  unlawful  delegation  of  the  legislative  power,  by  remitting  10 
another  Stale  the  enactment  of  tax  laws,  and  (2)  that  the  legislation  violated  the 
Federal  Constitution,  by  denying  to  a  person  within  the  jurisdiction  of  the 
Slate,  the  equal  protection  of  the  laws.  People  v.  Fire  Assoc,  of  Phila.,  g2  N.  Y. 
311.  Contra,  Clark  v.  Mobile,  66  Ala.  217.  The  New  York  case  is  affirmed  as 
to  the  second  point  in  Phila.  Fire  Assoc,  v.  A^ew  York,  119  U.  S.  no. 

Insurance  as  Interstate  Commerce.  State  regulation  of  insurance  corpora- 
tions doing  business  in  two  or  more  Slates  is  not  in  conflict  with  that  clause  of 
the  Federal  Constitution  which  declares  that  Congress  shall  have  power  to 
"  regulate  commerce  with  foreign  nations  and  among  the  several  States." 
Insurance  policies  are  contracts,  and  "  are  not  not  articles  of  commerce  in  any 
proper  meaning  of  the  word."     Paul  v.   Virginia,  8  Wall.  168. 


40  FORMATION   OF   THE   CONTRACT. 

that  the  destruction  of  the  building  by  fire  would  immediately  and 
necessarily  result  in  pecuniary  loss,  the  loss  being  the  direct  conse- 
quence of  the  fire,  the  creditor  has  an  interest  in  the  protection  of 
the  building.  He  has  no  lien  as  in  the  case  of  a  mortgagee  nor 
such  lien  as  the  statute  may  confer  on  an  attaching  or  execution 
creditor;  but  his  right  to  subject  the  specific  property  to  his  debt 
invests  him  with  an  interest  but  little  less,  if  any,  than  that  of  the 
attaching  or  execution  creditor  or  mortgagee.  In  the  case  of 
Herkimer  v.  Rice,  27  N.  Y.  163,  the  question  arose  as  to  whether  an 
administrator  of  an  insolvent  estate  held  an  insurable  interest  in 
the  real  estate  of  the  deceased  debtor.  The  court  (Denio,  C.  J., 
rendering  the  opinion)  held  that  he  did,  and  the  conclusion  was 
based  in  great  part  upon  the  proposition,  that  the  creditors  had 
such  an  interest  which  the  administrator  could  protect  by  insurance 
for  them.  We  think  whatever  could  be  done  by  an  administrator 
for  the  creditor  in  this  respect  could  be  done  directly  by  the  cred- 
itor for  himself.  Rohrbach  v.  Insurance  Co.,  62  N.  Y.  47.  Other 
reasons  might  be  given,  but  we  are  of  the  opinion  these  are  sufficient 
to  show  that  the  creditor  of  a  deceased  debtor,  whose  estate  is  insuffi- 
cient to  pay  the  debts,  has  an  insurable  interest  in  the  property  of 
the  estate,  which  by  law  may  be  subjected  by  proceedings  /;/  rem 
to  the  payment  of  the  debts.  The  recovery  cannot  exceed  the 
amount  of  the  insurable  interest. 

The  next  question  is  whether  the  pleadings  show  such  an  insur- 
able interest.  The  pleas  and  the  replication  appear  to  have  been 
drawn  with  technical  caution,  so  far  as  the  rights  of  Mattie  Flinn, 
the  creditor,  are  affected.  The  plea  shows  that  the  building  and 
lot  upon  which  it  is  located  belonged  to  the  estate  of  Thomas  Creed, 
deceased,  and  that  neither  of  the  assured  are  his  legal  heirs.  Upon 
the  death  of  Thomas  Creed  the  land  descended  to  his  legal 
heirs.  Prima  facie,  upon  the  facts  of  the  plea,  the  insured  owned 
no  insurable  interest.  The  replication  avers  that  Katie  Creed 
was  the  widow  of  Thomas  Creed,  and  that  he  owned  no  other 
real  estate,  and  this  statement  of  facts  is  followed  with  the 
conclusion  that  she  owned  a  dower  and  homestead  interest. 
Hers  was  clearly  an  insurable  interest.  Its  value  is  a  fact  to  be 
ascertained  by  proof.  The  replication  then  further  averred  that 
Mattie  Flinn  was  a  creditor  of  Thomas  Creed,  stating  the  amount 
of  her  claim,  the  insufficiency  of  personal  assets  to  pay  the  debts, 
and  that  there  was  no  other  real  property  belonging  to  his  estate. 
The  interest  shown  by  the  plea  to  be  in  Katie  Creed  (dower  and 
homestead)  does  not  include  the  entire  estate.  Under  the  replica- 
tion there  is  a  remainder  interest  in  the  real  estate  liable  for  the 


INSURABLE   INTEREST.  4I 

debts  of  the  estate.  The  pleadings  inform  us  that  the  lot  and 
building  were  in  the  city  of  Montgomery.  Whether  it  exceeded  in 
value  $2,000,  the  constitutional  limit  of  the  value  of  the  homestead 
exempt  from  debts  during  the  lifetime  of  the  widow,  does  not 
appear.  We  are  not  unmindful  of  the  statutory  provision  by  which, 
under  some  circumstances,  the  fee  to  the  homestead  may  become 
vested  in  the  widow  and  minor  children  or  widow  or  minor  child. 
The  consideration  of  these  questions  does  not  arise  upon  the  plead- 
ings.    The  court  erred  in  sustaining  the  demurrer  to  the  replication. 

Reversed  and  remanded.' 


RIGGS  V.  COMMERCIAL  MUTUAL  INS.  CO. 

125  N.  Y.  7.  —  iSqo. 

Action  by  John  S.  Riggs  against  the  Commercial  Mutual  Insur- 
ance Company.  Defendant  issued  to  Joseph  L.  Tobias  a  policy  of 
insurance  upon  the  steamer  Falcon  for  $1,000,  loss  payable  to 
Andrew  Simonds.  Tobias  was,  at  the  time  of  effecting  this  insur- 
ance, a  stockholder  in  the  Merchants'  Steamship  Company,  which 
then  owned  the  steamers  Sea  Gull  and  Falcon.  Simonds,  by  an 
indorsement  on  the  policy,  directed  the  insurance  company  to  "  pay 
to  John  S.  Riggs." 

'  "  But  the  result  of  a  comparison  of  the  text  writers  above  cited  is  that  there 
need  not  be  a  legal  or  equitable  title  to  the  property  insured.  If  there  be  a 
right  in  or  against  the  property,  which  some  court  will  enforce  upon  the  prop- 
erty, a  right  so  closely  connected  with  it,  and  so  much  dependent  for  value 
upon  the  continued  existence  of  it  alone,  as  that  a  loss  of  the  property  will 
cause  pecuniary  damage  to  the  holder  of  the  right  against  it,  he  has  an  insur- 
able interest.  Thus  a  mortgagee  of  real  estate,  though  he  hold  also  the  bond 
of  the  mortgagor,  has  an  insurable  interest  in  the  buildings;  while  a  judgment 
creditor  of  the  same  mortgagor,  his  judgment  being  a  lien  upon  the  same  real 
estate  and  the  same  buildings,  is  said  not  to  have  an  insurable  interest  in  them. 
The  interest  of  the  first  is  said  to  be  specific,  the  interest  of  the  latter,  general. 
As  a  general  rule,  the  distinction  may  be  sound.  But  I  think  it  v\?ouId  be  diffi- 
cult to  show  an  appreciable  practical  difference  in  the  pecuniary  result  to  the 
two.  If  the  mortgagor  and  judgment  debtor  should  die  leaving  no  personal 
property,  and  no  real  estate  save  that  mortgaged,  it  principally  valuable  for  the 
buildings  upon  it,  and  they  should  be  burned,  each  must  then  look  to  the  real 
estate,  the  lands  alone,  for  a  security  for  his  debt;  and  if  that  be  insufficient, 
each  must  with  equal  certainty,  suffer  a  pecuniary  disaster,  resulting  directly 
from  the  fire.  What  legal  reason  is  there,  why  the  one  may  not,  as  well  as  the 
other,  protect  himself  by  a  contract  of  insurance?  "  Rohrhach  v.  Ins.  Co.,  62  N. 
Y.  47.  54. 


42  FORMATION    OF   THE    CONTRACT. 

Andrews,  J.  *  *  *  The  question  whether  a  stockholder  in 
a  corporation,  as  such,  has  an  insurable  interest  in  the  corporate 
property,  which  he  may  protect  by  an  insurance  of  specific,  tangible 
property  of  the  corporation,  is  the  question  now  presented.  The 
policy  does  not  disclose  the  nature  of  the  interest  of  Tobias  in  the 
vessel  insured;  but  this  was  not  necessary,  unless  required  by  some 
condition  in  the  policy.  Lawrence  v.  Van  Home,  i  Caines,  276; 
T\lfr  V.  Insurance  Co.,  12  Wend.  507.  The  policy,  if  otherwise 
valid,  attached  to  whatever  insurable  interest  he  had,  whether  as 
owner  or  otherwise.  What  constitutes  an  insurable  interest  has 
been  the  subject  of  much  discussion  in  the  cases,  and  is  often  a 
question  of  great  difficulty.  It  is  quite  apparent  that  the  tendency 
of  decisions  in  recent  times  is  in  the  direction  of  a  more  liberal 
doctrine  upon  this  subject  than  formerly  prevailed.  May,  Ins.  §  76. 
Contracts  of  insurance  where  the  insured  had  no  interest  were  per- 
mitted at  common  law  {Craufurd  v.  Hunter,  8  Term  R.  13);  but  the 
manifest  evils  attending  such  contracts,  and  the  temptation  which 
they  afforded  for  fraud  and  crime,  led  to  the  enactment  in  England 
of  the  statute  19  Geo.  II.  c.  37,  prohibiting  wager  policies,  and  this 
was  followed  by  the  enactment  in  this  State  of  a  similar  statute 
(i  Rev.  St.  662)  prohibiting  wagers.  But  to  prevent  the  applica- 
tion of  the  statute  to  cases  of  insurance  by  way  of  security  and 
indemnity  it  was  provided  that  it  should  "  not  be  extended  so  as  to 
prohibit  or  in  any  way  affect  any  insurances  made  in  good  faith  for 
the  security  or  indemnity  of  the  party  assured,  and  which  are  not 
otherwise  prohibited  by  law."  Section  10.  It  would  seem,  there- 
fore, tnat  whenever  there  is  a  real  interest  to  protect,  and  a  person 
is  so  situated  with  respect  to  the  subject  of  insurance  that  its 
destruction  would  or  might  reasonably  be  expected  to  impair  the 
value  of  that  interest,  an  insurance  on  such  interest  would  not  be  a 
wager  within  the  statute,  whether  the  interest  was  an  ownership  in 
or  a  right  to  the  possession  of  the  property,  or  simply  an  advantage 
of  a  pecuniary  character,  having  a  legal  basis,  but  dependent  upon 
the  continued  existence  of  the  subject.  It  is  well  settled  that  a 
mere  hope  or  expectation,  which  may  be  frustrated  by  the  happen- 
ing of  some  event,  is  not  an  insurable  interest. 

The  stockholder  in  a  corporation  has  no  legal  title  to  the  cor- 
porate assets  or  property,  nor  any  equitable  title  which  he  can  con- 
vert into  a  legal  title.  The  corporation  itself  is  the  legal  owner, 
and  can  deal  with  corporate  property  as  owner,  subject  only  to  the 
restrictions  of  the  charter.  Plimpton  v.  Bigelaiv,  93  N.  Y.  593;  Van 
Allen  V.  Assessors,  3  Wall.  573.  But  stockholders  in  a  corporation 
have  equitable  rights  of  a  pecuniary  nature,  growing  out  of  their 


INSURABLE   INTEREST.  43 

situation  as  stockholders,  which  may  be  prejudiced  by  the  destruc- 
tion of  the  corporate  property.  The  object  of  business  corpora- 
tions is  to  make  profits  through  the  exercise  of  the  corporate  fran- 
chises, and  gains  so  made  are  distributable  among  the  stockholders 
according  to  their  respective  interests,  although  the  time  of  the 
division  is  ordinarily  in  the  discretion  of  the  managing  body.  It  is 
this  right  to  share  in  the  profits  which  constitutes  the  inducement 
to  become  stockholders.  So,  also,  on  the  winding  up  of  the  cor- 
poration, the  assets,  after  payment  of  debts,  are  divisible  among  the 
stockholders.  It  is  very  plain  that  both  these  rights  of  stockhold- 
ers —  viz.,  the  right  to  dividends  and  the  right  to  share  in  the  final 
distribution  of  the  corporate  property  —  may  be  prejudiced  by  its 
destruction.  In  this  case  the  ships  were  the  means  by  which  profits 
were  to  be  earned,  and  their  loss  would  naturally,  in  the  ordinary 
course  of  things,  diminish  the  capacity  of  the  corporation  to  pay 
dividends,  and  consequently  impair  the  value  of  the  stock.  The 
same  would  be  true  in  other  cases  which  might  be  mentioned;  as, 
for  example,  where  buildings  producing  rent,  owned  by  a  corpora- 
tion, should  be  burned.  It  is  not  necessary,  to  constitute  an  insur- 
able interest,  that  the  interest  is  such  that  the  event  insured  against 
would  necessarily  subject  the  insured  to  loss.  It  is  sufficient  that 
it  might  do  so,  and  that  pecuniary  injury  would  be  the  natural  con- 
sequence.     Cone  V.  Insurance  Co.,  60  N.  Y.  619. 

The  question  now  before  us  was  considered  by  the  Supreme  Court 
of  Iowa  in  the  case  of  Warren  v.  Insurance  Co.,  31  Iowa,  464.  The 
court,  in  a  careful  opinion,  reached  the  conclusion  that  a  sto-ck- 
holder  in  a  corporation  had  an  insurable  interest  in  the  corporate 
property.  In  Philips  v.  Insurance  Co.,  20  Ohio,  174,  there  is  an 
adverse  dictum,  but  the  decision  went  on  another  ground.  In 
Wilson  v,  Jones,  L.  R.  2  Exch.  139,  the  action  was  upon  a  policy  in 
favor  of  the  plaintiff,  a  shareholder  in  the  Atlantic  Telegraph  Com- 
pany, a  company  organized  to  lay  the  Atlantic  cable.  The  court 
construed  the  contract  as  an  insurance  of  the  plaintiff  in  respect  to 
the  adventure  undertaken  by  the  company  to  lay  the  cable,  and  it 
was  held  that  his  interest  as  shareholder  was  an  insurable  interest, 
and  likened  it  to  an  insurance  on  profits.  (See,  also,  Paterson  v. 
Harres,  i  Best  &  S.  336.)  It  is  difficult  to  perceive  any  good  reason 
why,  if  a  stockholder  could  be  insured  on  his  shares  in  a  corpora- 
tion against  a  loss  happening  in  the  prosecution  of  a  corporate 
enterprise,  he  could  not  insure  specifically  the  corporate  property 
itself  embraced  in  tht  adventure,  and  prove  his  interest  by  showing 
that  he  was  a  shareholder. 

The  question  here  is,  did  the  plaintiff  have  an  insurable  interest 


44  FORMATION    OF   THE   CONTRACT. 

covered  by  the  policy?  The  amount  of  damages  is  not  in  question. 
Except  that  the  parties  have  taken  that  question  out  of  the  contro- 
versy, the  extent  of  the  loss  would  be  a  question  of  fact  to  be  ascer- 
tained by  proof,  and  the  recovery  up  to  the  amount  insured  would 
be  measured  by  the  actual  loss.  We  are  of  opinion  that  the  view 
that  a  stockholder  in  a  corporation  may  insure  specific  corporate 
property  by  reason  of  his  situation  as  stockholder,  stands  upon  the 
better  reason,  and  also  that  it  is  in  consonance  with  the  current  of 
authority  defining  insurable  interests  in  our  courts.  The  cases  of 
Herkimer  v.  Rice,  27  N.  Y.  163;  Rohrbach  v.  Insurance  Co.,  62  N.  Y. 
47,  and  National  Filter-ing  Oil  Co.  v.  Citizens'  Ins.  Co.,  106  N.  Y.  535, 
13  N.  E.  Rep.  337,  sustained  policies  upon  interests  quite  as  remote 
as  the  interest  now  in  question.  It  would  be  useless  reiteration  to 
restate  the  particular  facts  and  grounds  of  the  decisions  in  these 
cases.  It  is  sufficient  to  refer  to  them,  and  to  say  in  conclusion 
that  it  seems  to  us,  both  upon  authority  and  reason,  that  the  insur- 
ance now  in  question  is  not  a  wager  policy,  but  is  a  fair  and  reason- 
able contract  of  indemnity,  founded  upon  a  real  interest,  though 
not  amounting  to  an  estate,  legal  or  equitable,  in  the  property 
insured. 

The  judgment  should  therefore  be  affirmed.     All  concur. 


HARRISON  V.  PEPPER. 
166  Mass.  288.  — 1S96. 

Bill  in  equity  to  compel  defendant  to  place  the  sum  received  by 
her  for  insurance  on  premises,  of  which  she  was  the  life  tenant,  in 
trust  for  plaintiff,  as  remainderman,  until  decease  of  defendant, 
with  income  payable  to  defendant  during  life.  Defendant  demurred. 
Demurrer  sustained.     Plaintiff  appealed. 

Morton,  J.  —  The  defendant,  as  life  tenant,  had  an  insurable 
interest  in  the  property;  and  although  it  is  alleged  in  the  bill  that 
she  renewed  the  insurance  on  the  building  in  her  own  name  "  as  an 
entirety  of  estate,  without  qualification,  *  *  *  for  the  sum  of 
twelve  hundred  dollars,"  and  that  that  sum  was  paid  to  her  as  the 
full  value  of  the  dwelling-house,  without  any  deduction  by  reason 
of  the  plaintiff's  ownership  in  fee,  it  is  not  alleged  that  the  sum  so 
paid  exceeded  the  value  of  the  defendant's  interest,  or  what  the  value 
of  the  defendant's  interest  was.  If  the  amount  received  by  the 
defendant  did  not  exceed  the  value  of  her  interest,  then  it  is  clear  that 
the  plaintiff  has  no  right  in  equity  to  any  portion  of  it.  Reitenbach  v. 
Johnson.,  129  Mass.  316;  Martineau  v.  Kiiching,   L.  R.  7   Q.  B.  436; 


INSURABLE   INTEREST.  45 

Stilwellx.  Staples,  19  N.  Y.  401.  But  if  we  assume  that  the  sum 
paid  is  equal  to  the  total  value  of  the  dwelling-house,  and  exceeds 
the  value  of  the  defendant's  interest,  and  that  the  bill  tinally  alleges 
this,  still  we  do  not  think  that  the  plaintiff  is  entitled  to  recover. 
A  tenant  for  life  is  liable  for  any  unauthorized  act  which  tends  to 
the  injury  of  the  inheritance;  in  other  words,  for  voluntary  waste. 
How  far  and  under  what  circumstances  he  is  liable  for  what  is 
termed  permissive  waste  is  not  altogether  clear,  and  we  need 
not  consider.  In  re  Cartiv right  {^Avis  v.  JVetvman^,  41  Ch.  Div.  532; 
Leake,  Land,  92;  Pollock  Torts,  285,  286;  Taylor  Landl.  &  Ten. 
(7th  Ed.)  §688;  Kerr,  In],  (ist  Ed.)  252.  We  have  been  referred 
to  no  case  in  which  it  has  been  decided  that  the  neglect  of  the  life 
tenant  to  insure  is  to  be  regarded  as  in  the  nature  of  voluntary  or 
permissive  waste,  though  it  has  been  held  that  the  failure  to  pay 
taxes  is  {Stetson  v.  Day,  ^i  Me.  434);  but  that,  manifestly,  stands 
upon  different  ground. 

It  is  plain  that  the  plaintiff  is  not  entitled  to  recover  unless  she 
has  some  claim  upon  the  funds  in  the  hands  of  the  defendant.  In 
the  absence  of  anything  that  requires  it  in  the  instrument  creating 
the  estate,  or  of  any  agreement  to  that  eftect  on  the  part  of  the  life 
tenant,  we  think  that  the  life  tenant  is  not  bound  to  keep  the  prem- 
ises insured  for  the  benefit  of  the  remainderman.  Each  can  insure 
his  own  interest,  but,  in  the  absence  of  any  stipulation  or  agree- 
ment, neither  has  any  claim  upon  the  proceeds  of  the  other's  policy, 
any  more  than  in  the  case  of  mortgagor  and  mortgagee,  or  lessor 
and  lessee,  or  vendor  and  vendee.  Biirlingame  v.  Goodspeed,  153 
Mass.  24,  26  N.  E.  232;  Trust  Co.  v.  Board/nan,  149  Mass.  158,  21 
N.  E.  239;  Insurance  Co.  v.  Boyden,  9  Allen,  123;  Warivicker  ^. 
Bret  nail,  23  Ch.  Div.  1S8;  leeds  v.  Chectham,  i  Sim.  146;  Rayner  \. 
Preston,  18  Ch.  Div.  i;  Kearney  v.  Kearney,  17  N.  J.  Eq.  59,  71. 
The  contract  of  insurance  is  a  personal  contract,  and  inures  to  the 
benefit  of  the  pariy  with  whom  it  is  made,  and  by  whom  the  premi- 
ums are  paid.  It  is  a  contract  of  indemnity  against  loss.  The  sum 
paid  "  is  in  no  proper  or  just  sense  the  proceeds  of  the  property." 
lerow  \.  Wlmarth,  9  Allen,  382,  385;  Insurance  Co.  v.  Boyden,  Id, 
123;  Wilson  V.  Hill,  3  Mete.  (Mass.)  66;  King  v.  Itisurance  Co.,  7 
Cush.  i;  Insurance  Co.  v.  Lawrence,  10  Pet.  507,  512. 

It  is  not  averred,  and  does  not  appear,  that  the  defendant  intended 
to  make  a  present  of  the  proceeds  of  the  policy  to  the  plaintiff,  or 
was  insuring  for  her  benefit.  Whether  the  amount  of  indemnity 
received  by  the  defendant  for  her  loss  was  more  or  less  than  the 
value  of  her  interest  cannot  affect  the  plaintiff.  Nor  can  the  defend- 
ant be   converted   into  a  trustee  for  the  plaintiff  by  the  mere  fact 


4^  KUKMAllU.N    Ul-    THE    CuMKAC T. 

that  lac  anijuat  which  she  received  was  equal  to  the  full  value  of 
the  lioase.  It  was  paid  to  and  received  by  her  as  indemnity  for  the 
loss  which  she  had  ^u^tained,  and,  as  already  observed,  does  not 
stand  in  the  place  of  the  property  insured.  In  ^Vf/s/i  v.  Assurance 
Co.,  151  Pa.  St.  607,  617,  25  Ati.  142,  relied  on  by  the  plaintiff, 
there  was  evidence  that  the  life  tenant  intended  to  insure  for  the 
benefit  of  herself  and  the  remainderman.  The  plaintiff  argues  that 
sound  public  policy  requires  that  money  received  by  a  life  tenant 
on  a  total  loss  by  fire  should  be  used  in  rebuilding,  or  should  go 
to  the  remainderman  reserving  the  interest  to  the  life  tenant  for 
life.  This  argument  proceeds  on  the  assumption  that  the  proceeds 
of  the  insurance  take  the  place  of  the  property  insured  —  a  view 
which,  as  we  ha^e  seen,  is  contrary  to  our  own  and  other  decisions. 
We  think  that  the  decree  dismissing  the  bill,  with  costs,  should  be 
affirmed,  and  it  is  so  ordered.' 


TRADE  INSURANCE  COMPANY  v.  BARRACLIFF. 

45  N.  J.  L.  543.  — 1883. 

Dixon,  J.  —  Upon  a  policy  of  fire  insurance  issued  by  the  defend- 
ant to  the  plaintiff  this  action  was  brought  ir.  the  Supreme  Court, 
tried  in  the  Cumberland  Circuit,  where  the  plaintiff  obtained  a  ver- 
dict, and  removed  by  writ  of  error  to  this  court.  'Vne  assignments 
of  error  relied  on  all  relate  to  exceptions  taken  at  the  trial.      *     *     * 

The  fourth  exception  is  to  the  charge  of  the  judge,  that  the  plain- 
tiff had  an  insurable  interest  in  the  prop.-irty  and  could  recover  for 
the  whole  damage  occasioned  by  the  fire,  not  exceeding  the  amount 
of  tlie  insurance. 

Tne  property  insured  consisted  of  the  buildings  and  stock  upon  a 
farm  whereon  the  plaintiff  with  his  family  resided.     The  title  of  the 

'  "  In  the  case  of  Atmely  v.  DeSaussure,  26  S.  C.  505,  an  insurance  policy 
taken  out  by  one  tenant  in  common  was  held  not  to  inure  to  the  benefit  of  the 
co-tenant.  One  tenant  in  common  is  not  in  any  sense  a  trustee  for  his  co- 
tenant,  and  has  no  insurable  interest  in  his  share  of  the  property.  A  life  ten- 
ant, on  the  other  hand,  is  a  trusiee  for  the  remainderman,  and  is  certainly 
liable  for  loss  by  fire  caused  by  his  negligence.  He  ought  not  to  be  allowed  to 
put  himself  in  a  position  in  which  he  would  have  no  motive  for  proper  care  of 
the  estate  by  having  a  policy  of  fire  insurance  by  which,  in  case  of  loss,  he  could 
substitute  the  full  fee  simple  value  of  the  buildings  in  place  of  his  interest  for 
life.  We  therefore  think  that  a  sound  public  policy  requires  that  any  money 
collected  by  a  life  tenant  on  a  total  loss  by  fire  should  be  used  in  rebuilding,  or 
should  go  to  the  remainderman,  reserving  the  interest  for  life  for. the  life  ten- 
ant.'   —  Clyburn  v.  Reynolds    31  S.  C.  91.  118. 


INSURABLE   INTEREST.  47 

pf3p:;rty,  both  real  and  personal,  was  vested  in  his  wife,  but  he  had 
the  possession  and  enjoyment  of  it  as  the  head  of  his  household. 
The  plaiatiff  and  his  wife  had  had  living  offspring  of  their  marriage. 
The  insurance  was  effected  by  the  plaintiff  with  the  authority  of  his 
wife,  aij  the  agent  of  the  company  who  mide  the  contract  knew 
tliit  t'le  wife  was  the  owner,  at  least  of  the  realty.  These  are  the 
ficts  upon  which  the  validity  of  the  exception  is  to  be  determined. 
*  *  *  I  think  It  is  clear  that  in  the  case  before  us  the  plaintiff 
hiJ  an  insurable  interest  in  both  the  personal  and  real  property  of 
his  wife.  Of  the  personalty,  he  had  the  actual  possession  and 
e.ijoyment,  and  also  a  reasonable  expectation  of  these  pecuniary 
advantages  as  lawful  incidents  of  his  wife's  ownership  and  his  mari- 
tal relations  with  her.  His  interest  was  such  that,  even  in  criminal 
pleading,  framed  to  convict  one  of  the  larceny  of  the  goods, 
he  might  be  described  as  their  owner.  Petre  v.  State^  6  Vroom 
64.  In  the  realty  he  had  not  only  these  same  benefits,  but  also 
an  inchoate  right  of  curtesy.  He  was  not,  indeed,  tenant  by  the 
curtesy  initiate,  since  the  act  of  1852  prevented  his  acquisition 
of  that  estate  (^Porch  v.  Fries,  3  G.  E.  Green,  204),  but  by  the  birth 
of  offspring  he  had  obtained  an  inchoate  right  which,  on  his  wife's 
death,  he   surviving,  would  bloom  into  a  freehold.     Ross  v.  Adatns, 

4  Djtcher,  160.  Such  present  benefits,  coupled  with  such  prospec- 
tive rights,  come  easily  within  the  definition  of  an  insurable  interest. 
A::cordingly,  when  we  seek  for  adjudications  on  these  very  points, 
we  find  them  almost  uniformly  supportmg  the  right  to  insure. 
Thjs,  in  Goulstine  v.  Royal  Ins.  Co.,  i  F.  &  F.  276,  Ghief  Baron 
Pollock  ruled  that  a  husband  had  an  insurable  interest  in  goods  set- 
tled to  his  wife's  separate  use,  but  in  their  joint  possession  as  the 
furniture  of  their  home,  and  could  recover  for  their  loss  under  a 
policy  issued  to  himself  alone.  In  Clark  et  ux.  v.  Firemen  s  Ins.  Co., 
18  La.  431,  it  was  decided  that  a  policy  taken  out  by  the  husband 
on  furniture  belonging  to  his  wife,  but  used  in  their  dwelling,  was 
valid.  In  Cohn  v.  Virginia  Ins.  Co.,  3  Hughes  G.  Gt.  272,  the  hus- 
band's right  of  using  his  wife's  goods  was  said  to  be  an  insurable 
interest,  although  a  verdict  for  the  plaintiff  was  set  aside  for  want 
of  a  proper  description  of  that  interest  in  the  policy  and  declaration. 
h:\  opposite  view  seems  to  have  been  entertained  in  Agricultural 
Ins.  Co.  V.  Montague,  38  Mich.  548,  where  a  husband  had  procured 
insurance  on  his  wife's  silverware;  but  the  report  does  not  indicate 
whether  the  husband  had  any  possession  or  use  of  the  property,  and 
the  decision  rested  on  the  invalidity  of  the  policy,  because  the 
wife's  title  was  not  set  out  in  the  policy  as  the  contract  required. 

5  )  as  to  the   wife'  s   realty.     In   Franklin  Ins.    Co.    v.   Drake,  2  B. 


48  FORMATION   OF   THE   CONTRACT. 

Mon.  47,  the  husband  was  substantially  a  tenant  by  the  curtesy 
initiate  of  his  wife's  lands,  and  it  was  held  that  he  had  an  insurable 
interest,  and  that,  having  such  interest,  he  was  entitled  to  recover 
the  whole  value  of  the  property  destroyed,  without  regard  to  the 
value  of  his  personal  interest,  the  court  saying  that  the  amount  of 
recovery  depends  on  the  interest  intended  to  be  insured.  In  Mer- 
rett  V.  Farmers'  Ins.  Co.,  42  Iowa,  11,  a  husband  had  taken  out  a 
policy  in  his  own  name  on  a  building  erected  by  his  wife  before 
marriage,  on  land  in  which  she  had  only  a  life  estate,  but  which  was 
used  by  both  as  a  homestead,  and  it  was  held  that  he  had  an  insur- 
able interest  by  reason  of  his  possession,  and  that  he  could  recover 
for  the  whole  damage,  because  the  policy,  by  providing  that  the 
amount  of  loss  was  to  be  estimated  according  to  the  ac:ual  cash 
value  of  the  property  at  the  time  of  the  loss,  indicated  that  the 
insurance  was  intended  to  cover  the  entire  injury.  The  court  said; 
"  If  the  holder  has  an  insurable  interest,  no  inquiry  is  made  as  to 
the  value  of  that  interest,  *  *  *  to  limit  the  obligation  of  the 
underwriters.  The  rule  may  be  different  in  the  case  of  mortgagees 
and  lienholders."  In  Harris  v.  York  Mut.  Ins.  Co.,  50  Pa.  Sl.  341, 
the  husband's  interest  was  precisely  like  that  of  the  present  plain- 
tiff; he  had  an  inchoate  right  of  curtesy  and  was  in  occupation  ut 
the  building  insured  as  the  dwelling  of  himself  and  wife.  The  pot- 
icy  and  the  action  were  in  his  own  name,  and  they  were  sustained, 
both  because  of  his  own  interest  and  because  of  his  implied  agency 
for  his  wife;  Woodward,  C.  J.,  saying  on  this  latter  point:  "  When 
a  husband  has  effected  an  insurance  on  houses  in  the  joint  posses- 
sion of  himse'.f  and  wife,  but  which  belong  to  her,  the  law  will  pre- 
sume her  ratification  of  his  act,  if  not  her  precedent  authority  to 
perform  it,  and  will  support  the  insurance  for  her  benefit."  To 
like  effect  are  Mut.  Ins.  Co.  v.  Deale,  18  Md.  26,  and  American  Cent. 
Ins.  Co.  V.  McLanathan,  11  Kan.  533,  and  Mr.  Phillips  approves  the 
doctrine  that  a  husband  having  a  right  to  tenancy  by  the  curtesy  in 
the  event  of  his  surviving  his  wife,  has  an  insurable  interest  in  her 
real  estate.     Phillips  on  Ins.  §  350. 

Having  thus,  then,  concluded  that  the  plaintiff  had  an  insurable 
interest  at  the  making  of  the  contract  and  at  the  time  of  the  loss, 
the  ne.xt  question  is  as  to  the  amount  of  recovery.  And  on  this 
point  it  will  not  be  necessary  to  go  so  far  as  some  of  the  cases  already 
cited,  and  say  that  no  inquiry  into  the  interest  of  the  assured  will 
be  permitted;  but  I  think  this  principle  may  be  justly  laid  down 
that  the  amount  to  be  recovered  will  depend,  not  on  the  loss  hap- 
pening to  the  individual  interest  of  the  assured,  but  on  the  damage 
accruing  to  whatever  interests  are  covered  by  the  policy,  so  far  as 


INSURABLE    INTEREST.  49 

the  assured  represents  those  interests,  whether  as  his  own  or  by 
the  precedent  authority  or  subsequent  ratification  of  others.  On 
this  notion  rest  all  the  cases  enforcing  insurance  effected  by  con- 
signees, factors  and  other  bailees  and  agents,  to  the  full  amount  of 
the  loss.  It  supports,  too,  the  judgments  in  most  of  the  cases 
already  cited.  It  finds  a  notable  illustration  in  IVaring  v.  Indemnity 
Ins.  Co.,  45  N.  Y.  606,  where  the  plaintiffs  had  taken  out  a  floating 
policy  insuring  themselves  against  loss  by  fire  on  goods  "  sold  but 
not  removed,"  and  it  was  held  that  they  could  recover  the  full 
amount  of  the  insurance,  although  when  the  fire  occurred  the  prop- 
erty had  been  sold  and  completely  delivered  by  the  plaintiffs,  and 
their  responsibility  terminated,  but  the  goods  had  not  been  removed 
by  the  vendees  from  the  place  of  storage.  The  description  in  the 
policy  embraced  the  goods  destroyed,  and  the  plaintiffs  recovered 
for  the  benefit  of  their  vendees.'  See  also  Strong  v.  Manuf.  Ins. 
Co.,  10  Pick.  40,  and  J/tzr/jT  V.  Cumberland  Ins.  Co.,  15  Vroom,  478. 

In  the  case  before  us  there  is  no  doubt  that  the  plaintiff  repre- 
sented his  wife's  interest  as  well  as  his  own,  and  that  he  intended 
to  effect  this  insurance  on  behalf  of  both,  and  that  such  intention 
was  known  to  the  underwriters.  This  fact  of  representation  is  not, 
indeed,  expressly  stated  in  the  policy,  but  it  is  no  part  of  the  law 
either  of  contracts  or  of  evidence,  that  the  principal  shall  be  dis- 
closed on  the  face  of  the  writing.  In  Insurance  Company  v.  Chase, 
5  Wall.  509,  the  assured  was  only  one  of  five  trustees  of  a  Congre- 
gational church  in  Portland,  and  the  policy  insuring  the  church 
edifice  was  issued  to  him  as  if  he  had  been  personally  the  absolute 
owner  in  fee;  the  company  contended  that  the  policy  could  cover 
only  his  individual  interest,  or,  at  the  furthest,  the  fractional  inter- 
est which  he  had  as  trustee.  But  the  court  held  that  the  plaintiff, 
having  assured  the  building  with  the  assent  of  his  co-trustees  and 
for  the   benefit   of   the   cestuis  que  trustent,  the  company  could  not 


'  Insurable  Interest  of  Bailees.  "Agents,  commission  merchants  or  others, 
having  the  custody  of,  and  being  responsible  for,  property,  may  insure  in  their 
own  names;  and  they  may,  in  their  own  names,  recover  of  the  insurer  not  only 
a  sum  equal  to  their  own  interest  in  the  property  by  leason  of  any  lien  for 
advances  or  charges,  but  the  full  amount  named  in  the  policy  up  to  the  value 
of  the  pioperty.  In  all  such  cases,  the  right  to  insure  and  the  right  to  recover 
seem  to  be  founded  upon  the  relation  above  adverted  to.  See  DeForrest  v. 
Fulton  Ins.  Co.,  i  Hall  Sup.  Ct.  Rep.  84:  Stilluell  v.  Staples,  19  N.  Y.  401;  Siter 
V.  Motts,  I  Harris  Penn.  St.  R.  218.  The  right  is  put  upon  the  fact,  that  hav- 
ing the  possession  of  the  property  exclusive  as  to  all  but  the  owner,  to  whom 
they  are  responsible,  Ihey  have  the  right  to  protect  from  loss,  so  that  it  or  its 
value  may  be  rendered  to  the  owner  when  he  calls  for  his  own."  —  Waring  v. 
Ins.  Co..  45  N.  Y.  606,  611. 

LAW  OF  INSURANCE  —  4 


50  FORMATION   OF   THE   CONTRACT. 

complain  that  the  character  of  the  interest  was  not  incorporated  in 
the  policy  and  must  pay  the  whole  loss. 

The  policy  now  under  consideration  clearly  indicates  a  design  to 
have  the  insurance  cover  the  entire  ownership.  This  would  be 
inferred,  at  least  for  the  purpose  of  supporting  the  contract,  from 
the  fact  that  no  particular  interest  is  mentioned  as  the  subject  mat- 
ter of  the  insurance,  but  it  more  expressly  appears  in  the  clause 
which  provides  for  estimating  the  arnountof  loss  or  damage,  accord- 
ing to  the  actual  value  of  the  insured  property  at  the  time  of  the 
fire,  in  that  which  requires  the  proof  of  loss  to  set  forth  the  value 
of  the  property  insured  and  the  interest  of  the  assured  therein,  and 
in  that  which  gives  to  the  company  an  option  of  replacing  the 
property  burned  with  other  of  the  same  kind  and  goodness.  These 
expressions  show  that  the  property  insured  was  not  necessarily  the 
interest  of  the  assured  alone.  Jf^a/ers  v.  Assurance  Co.,  5  E.  &  B. 
870;  Merre/t  v.  Farmers'  Tin.  Co.,  42  Iowa,   11.      *     *     * 

The  judgment  of  the  Supreme  Court  should  be  afifirmed. 

For  affirmance  —  The  Chancellor,  Dixon,  Knapp,  Scudder, 
Clement,  Cole,  Kirk:,  Paterson,  Whitaker  —  9. 

For  reversal — The  Chief  Justice,  Depue,  Magie,  Green  —  4. 


b.  Insurable  Interest  in  Life. 

I.   Insurable  Interest  in  One's  Own  Life. 

^TNA  LIFE  INSURANCE  COMPANY  v.   FRANCE. 

94  U.  S.  561.  —  1876. 

Error  to  the  Circuit  Court  of  the  United  States  for  the  Eastern 
District  of  Pennsylvania. 

Mr.  Justice  Bradley  delivered  the  opinion  of  the  court. 

This  action  was  brought  by  David  France  and  Lucetta  P.,  his 
wife,  to  recover  the  amount  of  a  policy  of  insurance  for  $10,000, 
issued  by  the  ^tna  Life  Insurance  Company  on  the  life  of  Andrew 
J.  Chew,  of  Philadelphia,  dated  September  13,  1865,  and  payable  to 
the  said  Lucetta,  who  was  Chew's  sister. 

The  proposals  for  the  insurance,  made  out  upon  one  of  the  printed 
blanks  of  the  company,  were  signed  by  both  Chew  and  Mrs. 
France.     *     *     * 

The  trial  resulted  in  a  verdict  and  judgment  for  the  plaintiffs. 
The  defendant  sued  out  this  writ  of  error.     *     *     * 

On  the  question  whether  Lucetta  P.  France  had  an  insurable 
interest  in  the  life  of  Chew,  the  conceded  facts  are  that  she  was  his 


INSURABLE    INTEREST.  5 1 

sister,  as  stated  in  the  policy;  that,  at  the  time  the  policy  was 
issued,  she  was  married  to  the  other  plaintiff,  David  France,  and  in 
no  way  dependent  on  her  brother  for  her  support;  that  the  latter 
was  earning  his  living  as  a  ladies'  shoemaker,  and  was  of  small 
means.  Evidence  was  given  tending  to  show  that  Mrs.  France  had, 
at  different  times,  loaned  money  to  her  brother  to  an  amount  of 
some  $2,000,  and  lent  him  $400  more  in  September,  1865;  that  a 
previous  policy  of  like  amount  with  the  present  had  been  obtained 
of  the  defendant  company  on  Chew's  life  for  his  sister's  benefit 
in  June  of  the  same  year,  and  that  at  the  time  of  issuing  the 
policy  now  in  suit  he  was  unmarried,  but  was  engaged  to  be  married, 
and  was  in  fact  married  the  next  day.  The  policy,  as  well  as  the 
several  receipts  for  the  annual  premiums,  signed  by  the  secretary 
of  the  company,  and  countersigned  by  its  agent  in  Philadelphia,  all 
acknowledged  that  said  premiums  were  received  from  Chew. 

The  construction  given  to  the  policy  by  the  court  below  was, 
that  it  was  a  contract  between  the  company  and  Chew  for  an  assur- 
ance of  his  life,  with  a  stipulation  and  agreement  that  the  money 
should  be  paid  to  his  sister;  and  the  court  held  that  such  a  policy 
is  sustainable  at  law  on  account  of  the  nearness  of  the  relationship 
between  the  parties,  and  especially  as  Mrs.  France,  at  the  time  the 
insurance  was  effected,  was  one  of  Chew's  next  of  kin,  prospectively 
interested  in  his  estate  as  a  distributee.  We  concur  in  the  con- 
struction of  the  policy  made  by  the  court,  and  in  the  validity  of  the 
transaction.  As  held  by  us  in  the  case  of  the  Cotinecticut  Mutual 
Life  Insurance  Company  v.  Schaefer,  supra,  p.  457,  any  person  has  a 
right  to  procure  an  insurance  on  his  own  life  and  to  assign  it  to 
another,  provided  it  be  not  done  by  way  of  cover  for  a  wager  policy; 
and  where  the  relationship  between  the  parties,  as  in  this  case,  is 
such  as  to  constitute  a  good  and  valid  consideration  in  law  for  any 
gift  or  grant,  the  transaction  is  entirely  free  from  such  imputation. 
The  direction  of  payment  in  the  policy  itself  is  equivalent  to  such 
an  assignment. 

The  insurance  company  gave  in  evidence  three  promissory  notes 
given  by  Lucetta  P.  France  herself  for  part  of  the  last  three  premi- 
ums paid  on  the  policy,  and  requested  the  court  to  charge,  that  if 
the  jury  believed  that  the  premiums  on  the  policy  were  paid  by 
Lucetta  P.  France,  whether  in  cash  or  by  her  notes,  there  was  evi- 
dence from  which  they  could  find  that  the  application  for  insurance 
was  made  and  the  policy  in  question  taken  out  by  her  for  her  own 
benefit;  and,  if  such  was  the  case,  she  must  show  an  insurable 
interest  in  the  life  of  her  brother,  beyond  that  of  mere  relationship, 
before  she  could  recover.     The  court  refused  so  to  charge;  and,  we 


52  FORMATION   OF   THE   CONTRACT. 

think,  rightly.  Waiving  the  question,  whether,  merely  as  sister  of 
Chew,  Mrs.  France  could  have  effected  in  her  own  name  an  insur- 
ance on  his  life,  without  its  being  obnoxious  to  the  charge  of  a 
wager  policy,  the  evidence  was  incompetent  to  prove  the  fact  sought 
to  be  proved  by  it.  The  company,  when  taking  the  notes  in  ques- 
tion, acknowledged  the  premiums  to  have  been  received  from  Chew, 
and  was  estopped  from  going  behind  its  own  admission,  under  the 
circumstances  of  the  case.  The  contract  of  insurance,  as  correctly 
construed  by  the  court,  was  made  with  Chew;  and  the  relationship 
of  the  parties  was  such  as  to  divest  the  "assignment  of  the  policy  or 
the  direction  of  its  payment  to  his  sister  of  all  semblance  of  a  wager- 
ing transaction.  Under  the  circum>tances,  it  matters  not  if  the 
money  or  notes  required  for  paying  the  premium  did  come  from 
Mrs.  France;  at  most,  it  was  by  way  of  advance  on  her  brother's 
account,  and  on  his  contract.  He  had  a  right  to  take  out  a  policy 
on  his  own  life  for  his  sister's  benefit;  and  she  had  a  right  to 
advance  him  the  necessary  means  to  do  so.  As  between  strangers, 
or  persons  not  thus  nearly  connected,  such  a  transaction  would  be 
evidence  to  go  to  the  jury,  from  which,  according  to  the  circum- 
stances of  the  case,  they  might  or  might  not  infer  that  it  was  mere 
gambling.  But  as  between  brother  and  sister,  or  other  near  rela- 
tions, desirous  of  thus  providing  for  each  other,  and,  as  said  by 
Chief  Justice  Shaw,  presumed  to  be  actuated  by  "  considerations  of 
strong  morals,  and  the  force  of  natural  affection  between  near 
kindred  operating  often  more  efficaciously  than  those  of  positive 
law,"  [Loomis  v.  Eagle  Life  Ins.  Co..,  6  Gray,  399),  the  case  is 
divested  of  that  gambling  aspect  which  is  presented  where  there  is 
nothing  but  a  speculative  interest  in  the  death  of  another,  without 
any  interest  in  his  life  to  counterbalance  it.  On  this  ground  we 
hold,  that  where,  as  in  this  case,  a  brother  takes  out  a  policy  on  his 
own  life  for  the  benefit  of  his  sister,  it  is  totally  immaterial  what 
arrangement  they  choose  to  make  between  them  about  the  payment 
of  the  premiums.  The  policy  is  not  a  wager  policy.  It  is  divested 
of  those  dangerous  tendencies  which  render  such  policies  contrary 
to  good  morals.  And  as  the  company  gets  a  perfect  quid  pro  quo  in 
the  stipulated  premiums,  it  cannot  justly  refuse  to  pay  the  insur- 
ance when  incurred  by  the  terms  of  the  contract.     *     *     * 

Judgment  affirmed.' 


'  In  Wkitmore  v.  Supreme  Lod^e,  100  Mo.  36,  the  defendant  issued  its  benefit 
certificate  to  Mary  Mudd,  a  member  of  the  order,  payable  to  Marie  E.  Whit- 
more,  as  trustee  of  her  daughter,  Marie  L.  Whilmore.  Marie  E.  and  her  hus- 
band Benjamin  T.  sued   upon   the  certificate.     Defendant  claimed  that  Benja- 


INSURABLE    INTEREST.  53 

2.  Insurable  Interest  in  the  Life  of  Another. 
a.  Relationship. 

SINGLETON  v.  ST.   LOUIS  MUTUAL  INS.  CO.  et  al. 

66  Mo.  63.  —  1877. 

Henry,  J.  —  Plaintiff  sued  defendants  on  a  policy  of  insurance 
issued  by  the  St.  Louis  Mutual  Life  Insurance  Company,  on  the  life 
of  John  T.  Anderson,  procured  by  plaintiff,  who  paid  the  premiums, 
and  was  to  receive  the  amount  for  which  said  life  was  insured  by 
said  company,  on  the  death  of  said  Anderson. 

Plaintiff  was  an  uncle  of  John  T.  Anderson,  but  it  was  neither 
alleged  nor  proved  by  plaintiff  that  he  had  any  pecuniary  interest 
in  his  life  and  the  mere  relation  of  uncle  and  nephew  does  not  con- 
stitute an  insurable  interest,  to  enable  either  to  insure  the  life  of 
the  other.  It  is  maintained  with  great  ability  by  Messrs.  McFarlan 
and  Jones,  attorneys  for  plaintiff,  that  a  policy  of  insurance, 
effected  by  one  on  the  life  of  another  in  which  he  has  no  pecuniary 
interest,  is  valid;  and  they  rely  upon  Chisholm  v.  Insurance  Co.,  52 
Mo.  213,  in  which  this  court  (Wagner,  J.)  said:  "  In  this  State  we 
have  no  statute  on  the  subject  covering  this  case,  and  as  the  policy 
is  not  void  by  the  common  law,  it  can  only  be  declared  so  on  the 
ground  that  it  is  against  public  policy.  There  is  nothing  to  show 
that  the  contract  was  a  mere  wagering  one,  or  that  it  is  in  any  wise 
against  or  contrary  to  public  policy."  These  remarks,  of  course, 
are  to  be  restricted  to  the  case  then  under  consideration.  The 
plaintiff  there  had  insured  the  life  of  Clark,  between  whom  and 
herself  there  was  a  marriage  engagement,  and  the  court  held  that 
she  had  a  pecuniary  interest  in  the  life  of  Clark,  remarking  that, 
"  had  he  observed  and  kept  the  same  (his  contract  of  marriage), 
then,  as  his  wife,  she  would  have  been  entitled  to  support.  Had 
he  lived  and  violated  the  contract,  she  would  have  had  her  action 
for  damages."  There  are  intimations  in  the  opinion  which  support 
the  views  urged  by  respondent's  attorney,  but  they  are  obiter  dicta. 
The  case  of  Insurance  Co.  v.  Johnson,  24  N.  J.  Law,  576,  is  approv- 
ingly cited  by  the  court,  but  a  different  doctrine  from  that  announced 
in  that  case  has  been  held  in  Massachustts,  New  York,  Connecticut, 


min  T.  procured  Mary  Mudd  to  thus  insure  her  life,  and  that  he  paid  the 
premiums,  and  that  he  had  no  insurable  interest  in  Mary  Mudd's  life.  It  was 
held  that  an  instruction  that  what  Benjamin  T.  Whitmore  could  not  do  directly, 
in  the  way  of  effecting  an  assurance  on  a  life  in  which  he  had  no  insurable 
interest,  he  could  not  do  indirectly,  was  correct.  See  also,  upon  this  point, 
Brockway  v.  Co.,  9  Fed.  249. 


54  FORMATION   OF   THE   CONTRACT. 

Maine,  Rhode  Island,  Indiana,  by  the  Circuit  Court  of  the  United 
States,  by  Dillon,  J.,  in  Sjvtck  v.  Insurance  Co.,  2  Dill.  161,  Fed. 
Cas.  No.  i3',692,  and  in  this  State  in  McKee  v.  Insurance  Co.,  28 
Mo.  383.  And  in  Ganibs  v.  Insurance  Co.,  50  Mo.  44,  it  was  held 
indirectly  that  a  person  procuring  an  insurance  on  the  life  of  another 
must,  to  make  it  valid,  have  a  pecuniary  interest  in  the  life  insured. 
In  the  latter  case.  Bliss,  J.,  said:  "  Gambling,  or  wager  policies, 
are  those  where  the  persons  for  whose  use  they  issue  have  no 
pecuniary  interest  in  the  life  insured.  But  the  wife  has  a  direct 
interest  in  the  life  of  her  husband."  In  the  former  case,  Scott,  J., 
said:  "  There  is  nothing  in  the  contract  as  stated  in  the  petition, 
which  shows  it  to  be  a  wagering  one,  or  in  any  wise  contrary  to 
public  policy." 

He  then  proceeds  to  show  that  the  plaintiff  had  a  pecuniary  inter- 
est in  the  life  of  the  husband,  which  she  insured  for  her  benefit.  In 
Evers  V.  Association,  59  Mo.  430,  Wagner,  J.,  who  delivered  the 
opinion  of  the  court,  did  not  seem  entirely  satisfied  with  Chisholm 
V.  Insurance  Co.  He  said:  "Our  opinion  on  this  subject  was 
expressed  in  Chisholm  v.  Insurance  Co.,  52  Mo.  213,  to  some  extent, 
but  it  is  not  necessary  to  examine  the  question  further  in  this  case, 
as  the  plaintiff's  own  instructions  assume  that  such  an  interest  is 
necessary."  As  the  observations  of  our  court  on  this  subject,  in 
the  case  referred  to,  are  obiter  dicta,  the  question  may  be  considered 
an  open  one  in  this  State.  In  his  Commentaries  (volume  3,  p. 
462)  Chancellor  Kent  said:  "  But  policies,  without  interest  upon 
lives  are  more  pernicious  and  dangerous  than  any  other  class  of 
wager  policies,  because  temptation  to  tamper  with  life  is  more  mis- 
chievous than  incitement  to  mere  pecuniary  fraud."  In  LorJx. 
Dall,  12  Mass.  115.  it  was  held  "that,  unless  the  assured  had  an 
interest  in  the  life  insured,  it  would  be  a  mere  wager  policy,  which 
we  think  would  be  contrary  to  our  laws,  and  therefore  void."  In 
Stevens  S.Warren,  10  r  Mass.  564,  Lordx.  Z>rt// was  cited  and  approved, 
and  Willis,  J.,  speaking  for  the  court,  said:  "The  general  rule 
recognized  by  the  courts  has  been  that  no  one  can  have  an  insur- 
ance upon  the  life  of  another,  unless  he  has  an  interest  in  the  con- 
tinuance of  that  life."  To  the  same  effect  are  the  cases  of  Mitchell 
V.  Insurance  Co.^  45  Me.  104;  Lewis  \.  Insurance  Co.,  39  Conn.  loi ; 
Bevin  v.  Insurance  Co.,  23  Conn.  244;  Motvry  v.  Insurance  Co  ,9  R. 
I.  346;  Insurance  Co.  v.  Hays,  41  Ind.  117;  Ruse  v.  Insurance  Co., 
23  N.  Y.  516;  Freeman  v.  Insurance  Co.,  38  Barb.  247;  Cammack  v. 
Lewis,  15  Wall.  643;  Swick  v.  Insurance  Co.,  2  Dill.  161,  Fed.  Cas. 
No.  13,692;  May,  Ins.  §  587,  p.  724. 

Neither   the   case   of   Shannon  v.  Nugent,  Hayes,   Exch.   539,  nor 


INSURABLE   INTEREST.  55 

Ferguson  v.  Lomax,  2  Dru.  &  War.  120,  cited  in  Chisholm  y.  I7isur- 
a7ice  Co.,  supra,  sustains  the  doctrine  contended  for  by  respondent. 
In  the  latter  case  the  question  was  neither  considered  by  the  court 
nor  presented  in  the  brief  of  counsel,  and  in  the  former,  Joy,  C.  B., 
speaking  for  the  court,  said:  "  It  is  not  now  necessary  for  us 
to  decide  whether  a  life  insurance,  made  in  Ireland,  must  be  on 
interest."  He  stated,  however,  that  the  leaning  of  the  court  was, 
that  interest  was  not  necessary  to  give  it  validity.  We  feel  con- 
strained, therefore,  by  the  weight  of  authority  to  hold  that  the 
policy  of  insurance  procured  by  one  upon  the  life  of  another,  for 
the  benefit  of  the  former,  who  has  no  pecuniary  interest  in  the  con- 
tinuance of  the  life  insured,  is  against  public  policy,  and  therefore 
void.  This  policy,  upon  its  face,  does  not  state  an  interest,  nor  in 
the  application  is  it  stated  that  Singleton  had  a  pecuniary  interest 
in  the  life  of  Anderson.  The  following  question  was  propounded  to 
the  applicant:  "  Has  the  beneficiary  (if  a  creditor)  an  interest 
in  the  life  to  be  assured  to  the  full  amount  of  this  application?  " 
To  which  he  answered  "  No."  He  does  not  state  that  he  is  a 
creditor.  It  was  neither  averred,  in  the  plaintiff's  petition,  nor 
proved,  that  plaintiff  had  any  pecuniary  interest  in  the  continuance 
of  the  life  of  John  T.  Anderson.  The  following  instruction,  asked 
by  defendant,  the  court  refused:  "That  to  entitle  plaintiff  to 
recover  in  this  action,  he  must  show  some  insurable  interest  in  the 
life  of  John  T.  Anderson,  the  insured,  and  that  in  the  absence  of 
any  evidence,  showing  or  tending  to  show  such  insurable  interest, 
the  jury  must  find  for  defendant." 

Plaintiff's  counsel  contend  that  it  devolved  upon  defendant  to 
show  that  plaintiff  had  no  such  interest,  and  several  cases  from  our 
own  Reports  are  relied  upon  as  authority  for  this  position.  In  the 
earlier  of  these  cases  all  that  was  determined  was  that  when  a  con- 
tract was  good  at  common  law,  without  being  reduced  to  writing, 
after  the  passage  of  the  statute  of  frauds  it  was  matter  of  defense 
to  be  pleaded  that  the  contract  was  not  in  writing.  The  case  here 
is  of  a  contract  void  at  common  law,  upon  its  face,  and  of  course 
it  devolves  upon  plaintiff  to  show  such  facts  as  render  it  valid  and 
binding.  In  Freeman  v.  Insurance  Co.,  supra,  the  court  said:  "  It 
must  be  considered  as  well  settled  at  present  that  at  common  law, 
as  well  as  under  the  statute  of  betting  and  gaming,  a  policy  of  fire 
insurance  is  void,  unless  the  party  has  at  the  time  an  insurable 
interest.  It  follows  that  a  complaint  in  an  action  on  the  policy 
must  contain  an  averment  of  such  an  interest,  in  order  to  state  a 
cause  of  action."  "  The  plaintiff  must  aver  an  insurable  interest, 
or  if  he  has  not  that,  the  grounds  upon  which  he  rests  his  right  to 


56  FORMATION    OF   THE   CONTRACT. 

sue."  May,  Ins.  §  5S7.  In  Ruse  v.  Insurance  Co.,  supra,  in  which 
the  opinion  was  delivered  by  that  able  jurist,  Judge  Selden,  the 
court  said:  "  And  it  is  apparent  from  the  authorities,  that  it  had 
always  been  previously  held  in  suits  upDn  policies,  not  containing 
the  words,  '  interest  or  no  interest,'  or  other  equivalent  words,  that 
the  plaintiff  must  aver  and  prove  that  he  had  an  interest."  This 
was  said  in  reference  to  Depaba  v.  Ludlcnc,  Comyn,  361,  which  shows 
how  the  doctrine  that  wagering  policies  upon  ships  are  valid,  origi- 
nated. The  defendant  there  had  insured  the  plaintiff,  "  interest  or 
no  interest,"  and  it  was  held  that  the  import  of  that  clause  relieved 
plaintiff  from  proving  his  interest  That  the  plaintiff  must,  in  these 
cases,  aver  and  prove  an  interest,  was  held  in  the  Supreme  Court  of 
Illinois,  in  Insurance  Co.  v.  Ilogan,  80  111.  35,  and  that  he  must 
prove  the  same  affirmatively  as  a  part  of  the  case. 

The   court    below   erred   in   refusing  to   give  defendant's    tenth 
instruction,  and  for  thaterror  the  judgment  must  be  reversed.   *    *    * 


CRONIN  V.  VERMONT  LIFE  INS.  CO. 

20  R.  I.  570. —  1898. 

Stiness,  J.  —  This  action  is  brought  to  recover  insurance  on  the 
life  of  the  plaintiff's  niece,  and  the  main  question  raised  by  the 
defendant  to  the  declaration  is  whether  the  plaintiff  had  an  insurable 
interest  in  the  life  of  her  niece.  The  English  act  of  1774  (14  Geo. 
III.  c.  48,  §  i)  prohibited  insurance  on  the  life  of  a  person  in  which 
the  beneficiary  shall  have  no  interest,  or  by  way  of  gaming  or  wager- 
i?ig.  Although  the  statute  has  never  been  taken  as  a  part  of  our 
law,  its  rule  was  generally  followed  in  this  country,  as  declaratory 
of  the  common  law.  But,  in  defining  the  term  "interest,"  the 
tendency  of  the  decisions  both  in  England  and  in  this  country  has 
been  inclusive,  rather  than  exclusive.  There  has  even  been  some 
question- whether  insurance  without  interest  should  be  held  to  be 
void  on  the  ground  of  public  policy;  but,  in  this  State,  we  think  it 
has  been  understood  to  be  settled,  since  Mowry  v.  Insurance  Co.,  9 
R.  I.  346,  that  some  insurable  interest  must  exist.  This,  too,  is 
the  generally  accepted  rule.  In  Clark  v.  Allen,  11  R.  I.  439,  it  was 
held  that  a  policy  valid  in  its  inception  could  be  transferred  to  a 
botia  fide  purchaser  even  though  he  had  no  interest  in  the  life,  and 
some  of  the  objections  to  such  insurance,  on  the  ground  of  public 
policy,  were  considered,  and  shown  to  be  fanciful,  and  not  applied 
to  other  branches  of  law.  For  example,  the  element  of  chance 
enters  into  annuities;  and  the  temptation  to  shorten  life,  in  order 


INSURABLE   INTEREST.  5/ 

to  hasten  the  possession  of  a  remainderman  after  a  life  estate  in 
real  property,  is  as  strong  as  in  the  case  of  a  beneficiary  under  a 
life  policy. 

But  these  things  have  never  been  considered  to  be  contrary  to 
public  policy.  Still,  upon  principle,  a  purely  speculative  contract 
on  the  life  of  another  is  as  objectionable  on  the  grounds  of  public 
policy  as  a  like  contract  in  regard  to  grain  or  stocks.  In  fact,  it  is 
more  so,  and  such  a  contract  may  properly  be  held  to  be  void.  But 
the  case  is  quite  different  when  one,  by  his  own  contract,  or  even 
in  the  name  of  another,  or  upon  the  ground  of  debt,  affection,  or 
mutual  interest,  procures  insurance  for  the  benefit  of  another,  which 
is  really  to  stand  in  the  place  of  a  testamentary  gift.  And  so  kin- 
ship and  debt  have  come  to  be  recognized  as  sufficient  grounds  of 
interest.  Bliss,  Ins.  (2d  Ed.)  §§  12,  13;  i  May,  Ins.  (3d  Ed.) 
§  102a.  Recent  decisions  have  gone  further,  looking  more  to  the 
situation  of  the  parties  than  to  these  relations  alone.  In  Warnock 
v.  Davis,  104  U.  S.  775,  Field,  J.,  said:  "  It  is  not  easy  to  define 
with  precision  what  will  constitute  an  insurable  interest,  so  as  to 
take  the  contract  out  of  the  class  of  wager  policies.  It  may  be 
stated  generally,  however,  to  be  such  an  interest,  arising  from  the 
relations  of  the  party  obtaining  the  insurance,  either  as  creditor 
of  or  surety  for  the  assured,  or  from  the  ties  of  blood  or  marriage 
to  him,  as  will  justify  a  reasonable  expectation  of  advantage  or 
benefit  from  the  continuance  of  his  life."  We  think  that  this  states 
a  reasonable  rule,  and  that  it  is  now  substantially  the  accepted  rule. 
The  demurrer  in  this  case  being  to  the  whole  declaration,  we  need 
not  examine  the  counts  in  detail.  The  important  facts  are  that  the 
niece  lived  with  the  aunt  from  early  childhood  at  different  times, 
amounting  to  years;  that  their  relations  were  as  those  of  mother 
and  daughter;  that  the  plaintiff  supported  her  niece,  the  insured, 
and  that  a  debt,  both  of  affection  and  of  money,  was  due  to  the 
plaintiff,  for  which  she  expected,  and  had  a  right  to  expect,  return 
from  the  insured.  Does  this  not  set  out  an  insurable  interest?  We 
do  not  understand  the  word  "  debt,"  as  here  used,  to  mean  a  debt 
recoverable  at  law,  but  a  moral  obligation,  from  which  the  plaintiff 
had  the  right  to  expect  care  and  kindness  from  the  niece  in  case  of 
need.  Taken  in  this  view,  we  think  it  shows  an  insurable  interest, 
under  the  principles  above  laid  down. 

In  Lordv.  Ball,  12  Mass.  115,  it  was  held  that  a  sister  had  an 
insurable  interest  in  the  life  of  a  brother,  who  stood  to  her  in  loco 
parentis.  The  court  said:  "  In  common  understanding,  no  one 
would  hesitate  to  say  that  in  the  life  of  such  a  brother  the  sister 
had  an  interest."     The  later  case  of  Loomisw.  Insurance  Co.,  6  Gray, 


58  FORMATION    OF   THE    CONTRACT. 

396,  involved  the  question  of  the  interest  of  a  father  in  the  life  of 
a  minor  son;  but  Shaw,  C.  J.,  said  that,  upon  broader  and  larger 
grounds,  independently  of  the  fact  that  the  son  was  a  minor,  and 
that  the  assured  had  a  pecuniary  interest  in  his  earnings,  the  court 
was  of  opinion  that  the  father  had  an  insurable  interest.  These 
broader  grounds  appeared  further  on  to  be  "  consideration  of  strong 
morals,  and  the  force  of  natural  affection  between  near  kindred, 
operating  often  more  efficaciously  than  those  of  positive  law."  In 
Insurance  Co.  v.  France,  94  U.  S.  561,  — a  case  between  brother 
an  J  a  married  sister,  not  dependent,  —Bradley,  J.,  goes  so  far  as 
to  say:  "  Any  person  has  a  right  to  procure  insurance  on  his  own 
life,  and  to  assign  it  to  another,  provided  it  be  not  done  by  way  of 
cover  for  a  wager  policy;  and  where  the  relationship  between  the 
parties,  as  in  this  case,  is  such  as  to  constitute  a  good  and  valid 
consideration  in  law  for  any  gift  or  grant,  the  transaction  is  entirely 
free  from  such  imputation.  The  direction  of  payment  in  the  policy 
itself  is  equivalent  to  such  an  assignment."  In  Elkhart  v.  Hough- 
ton, 103  Ind.  2S6,  2  N.  E.  763,  the  insurable  interest  of  a  grandson 
in  the  life  of  a  grandfather,  with  whom  he  lived,  was  upheld.  It 
has  also  been  sustained  where  there  was  no  kinship,  as  in  the  case 
of  a  woman  who  was  engaged  to  be  married  to  a  man  [Chisholm  v. 
Insurance  Co.,  52  Mo.  213),  and  in  the  case  of  a  widosv  and  her 
son-in-law,  who  lived  together  {Adams  v.  Reed  [K.y.]  2>^  S.  W.  420). 

The  principle  of  these  and  other  like  cases  is  that  the  interest 
does  not  depend  upon  any  liability  for  support,  nor  upon  any  pre- 
cuniary  consideration,  nor  even  upon  kinship.  It  may  be  for  the 
benefit  of  the  old  or  the  young,  where  the  relation  between  the 
parties  is  such  as  to  show  a  mutual  interest,  and  to  rebut  the 
presumption  of  a  mere  wager.  The  contract  is  complete  and 
legal  in  itself,  and,  when  considerations  of  public  policy  do  not 
prohibit  its  enforcement,  there  is  no  reason  why  it  should  not  be 
carried  out. 

The  declaration  in  this  case  shows  that  the  plaintiff's  claim  is  not 
objectionable  on  the  grounds  of  public  policy.  It  shows  that  the 
relation  of  the  plaintiff  and  her  niece  had  been  of  such  a  character 
that  each  had  reason  to  rely  upon  the  other  in  case  of  need.  Should 
the  younger  die  first,  the  help  and  care  which  might  have  been 
expected  from  her  in  the  declining  years  of  the  aunt  could  only  be 
supplied  by  insurance  on  her  life.  This  is  no  more  speculation  than 
a  husband's  provision  for  his  wife  in  the  same  way.  It  is  natural 
and  reasonable,  and  in  accordance  with  modern  business  methods. 
In  short,  it  is  security  for  an  insurable  interest.  We  therefore 
think  that  the  contract  set  out  in  the  declaration  is  valid,  since  it 


INSURABLE    INTEREST.  59 

falls  within  the  proper  line  of  distinction  between  valid  contracts, 
where  there  is  mutual  interest,  and  invalid  contracts,  which  are 
evidently  mere  speculation. 

The  demurrer  to  the  declaration  is  overruled.' 


Bradley,   J.,  in  CONNECTICUT  MUTUAL  LIFE  INS.   CO.  v. 

SCHAEFER. 

94  U.S.  457.  —  1876. 

It  will  be  proper,  in  the  first  place,  to  ascertain  what  is  an 
insurable  interest.     It  is  generally  agreed  that  mere  wager  policies 

—  that  is,  policies  in  which  the  insured  party  has  no  interest  what- 
ever in  the  matter  insured,  but  only  an  interest  in  its  loss  or  destruc- 
tion—  are  void,  as  against  public  policy.  This  was  the  law  of 
England  prior  to  the  Re^'olution  of  1688.^  But  after  that  period  a 
course  of  decisions  grew  up  sustaining  wager  policies.  The  Legis- 
lature finally  interposed,  and  prohibited  such  insurance:  first,  with 
regard  to  marine  risks,  by  statute  of  19  Geo.  II  ,  c.  37;  and  next, 
with  regard  to  lives,  by  the  statute  of  14  Geo.  III.,  c.  48.  In  this 
country  statutes  to  the  same  effect  have  been  passed  in  some  of  the 
States;  but  where  they  have  not  been,  in  most  cases  either  the 
English  statutes  have  been  considered  as  operative,  or  the  older 
common   law   has   been   followed.     But   precisely   what   interest   is 

'  "  The  liability  of  a  child  under  the  poor  laws  for  the  support  of  a  parent, 
with  the  natural  feelings  of  affection  producing  a  desire  to  provide  for  the  com- 
fort of  the  parent,  gives  a  right  to  the  child  lo  effect  an  insurance  on  the  life 
of  the  parent."  Syllabus  in  iMtif.  /Reserve  Ins.  Co.  v.  Kane,  81  Pa.  154.  "It  is 
the  well  founded  expectation  of  advantage  to  be  derived  from  the  continuance 
of  the  life  insured  which  makes  the  insurable  interest  in  it,  and  not  the  mere 
relationship  as  between  father  and  son,  under  any  and  all  circumstances."  — 
Guardian   Ins.  Co.  v.  I/o:^an,  80  111.  35,  46. 

Lack  of  Insurablk  Interest  in  Incontestable  Policies.  "  The  quesiion 
remains,  whether  that  clause  of  the  policy  which  provides  that  the  instrument 
shall  become  '  incontestable  '  on  the  lapse  of  a  period  of  a  year  or  upwards, 
during  which  premiums  are  regularly  paid,  furnishes  a  good  answer  to  the 
objection  founded  on  the  terms  of  the  Code  [art.  2590  of  the  Civ.  Code  of  Lower 
Canada:  '  The  insured  must  have  an  insurable  interest,'  etc.].  The  rule  of  the 
Code  appears  *  *  *  to  be  one  which  rests  upon  general  principles  of  public 
policy  and  expediency  and  which  cannot  be  defeated  by  the  private  convention 
of  the  parties.     Any  other  view  would  lead  to  the  sanction  of  wager  policies." 

—  Anctil  V.  Ins.  Co..  [1899]  A.  C,  p.  6og.  Contra,  Wright  v.  Mut.  Benefit  Life 
Assoc,  118  N.  Y.  237.  241,  rep3rted  herein  at  p.  264. 

'  But  see  the  statement  as  to  the  validity  of  wagers,  in  England,  at  common 
law,  in  Dalby  v.  Co.,  reported  herein  ante,  p.  8. 


6o  FORMATION   OF   THE   CONTRACT. 

necessary  in  order  to  take  a  policy  out  of  the  category  of  mere 
wager,  ha>  been  the  subject  of  much  discussion.  In  marine  and 
fire  insurance  the  difficulty  is  not  so  great,  because  there  insurance 
is  considered  as  strictly  an  indemnity.  But  in  life  insurance  the 
loss  can  seldom  be  measured  by  pecuniary  values.  Still  an  interest 
of  some  sort  in  the  insured  life  must  exist.  A  man  cannot  take  out 
insurance  on  the  life  of  a  total  stranger,  nor  on  that  of  one  who  is 
not  so  connected  with  him  as  to  make  the  continuance  of  the  life  a 
matter  of  some  real  interest  to  him. 

It  is  well  settled  that  a  m.an  has  an  insurable  interest  in  his  own 
life,  and  in  that  of  his  wife  and  children;  a  woman  in  the  life  of  her 
husband;  and  the  creditor  in  the  life  of  his  debtor.  Indeed,  it  may 
be  said  generally  that  any  reasonable  expectation  of  pecuniary 
benefit  or  advantage  from  the  continued  life  of  another  creates  an 
insurable  interest  in  such  life.  And  there  is  no  doubt  that  a  man 
may  effect  an  insurance  on  his  own  life  for  the  benefit  of  a  relative 
or  friend;  or  two  or  more  persons,  on  their  joint  lives,  for  the 
benefit  of  the  survivor  or  survivors.  The  old  tontines  were  based 
substantially  on  this  principle,  and  their  validity  has  never  been 
called  in  question  The  essential  thing  is,  that  the  policy  shall  be 
obtained  in  good  faith,  and  not  for  the  purpose  of  speculating  upon 
the  hazard  of  a  life  in  which  the  insured  has  no  interest. 


i>.   Debtor  and  Creditor. 

Field,  J.,  in  CONNECTICUT  MUTUAL  LIFE  INS.  CO.  v. 

LUCHS. 

io8  U.  S.  498,  505.  — 1883. 

The  second  question  presented  for  our  determination  is  whether 
Luchs  had  an  insurable  interest  in  the  life  of  Dillenberg.  Upon 
this  we  have  no  doubt.  Dillenberg  was  his  partner  and  had  not 
paid  his  promised  proportion  of  the  capital  of  the  concern.  At  the 
time  the  policy  was  applied  for  he  was  still  in  default,  and  although 
it  might  have  turned  out  that  the  actual  amount  due  upon  a  settle- 
ment of  accounts  was  less  than  the  promised  proportion,  it  was  not 
a  matter  definitely  ascertained  at  the  time.  Besides  what  was  thus 
due  to  him,  Luchs  was  interested  in  having  Dillenberg  continue  in  the 
partnership.  He  had  such  an  interest,  therefore,  as  took  from  the 
policy  anything  of  a  wagering  character.  *  *  *  Certainly  Luchs 
had  a  pecuniary  interest  in  the  life  of  Dillenberg  on  two  grounds: 
Because  he  was  his  creditor  and  because  he  was  his  partner.     The 


INSURABLE    INTEREST.  6l 

continuance  of  the  partnership,  and,  of  course,  a  continuance  of 
Dillenberg's  life,  furnished  a  reasonable  expectation  of  advantage 
to  himself.  It  was  in  the  expectation  of  such  advantage  that  the 
partnership  was  formed,  and,  of  course,  for  the  like  expectation, 
was  continued. 

In  Morrell  v.  Trenton  Mutual  Life  and  Fire  Insurance  Company,  lo 
Gushing,  282,  a  policy  was  taken  out  by  the  plaintiff  upon  the  life 
of  his  brother,  who  was  about  going  to  California,  on  an  agreement 
that  the  latter  should  pay  to  him  one-fourth  of  his  earnings  for  the 
following  year.  In  an  action  i;n  the  policy  it  was  contended  that 
the  plaintiff  had  no  insurable  interest  upon  the  life  of  the  insured, 
but  the  court,  after  deciding  that  he  had  such  an  interest  from  the 
fact  that  he  held  a  promissory  note  signed  by  the  firm  of  which  the 
insured  was  a  partner,  also  said  that  it  was  strongly  incli.ied  to  the 
opinion  that  the  plaintiff  had  another  interest  in  the  life  of  the  per- 
son insured.  "  He  had,"  said  the  court,  "  a  subsisting  contract 
with  that  person,  made  on  a  valuable  consideration,  by  which  he 
was  to  receive  one-quarter  part  of  his  earnings  in  the  mines  of 
California  for  one  year.  Such  an  interest  cannot,  from  its  nature, 
be  valued  or  apportioned.  It  was  an  interest  upon  which  the  policy 
attached.  By  the  loss  of  his  life  within  the  year,  the  person  whose 
life  was  insured  lost  the  means  of  earning  anything  more,  and  the 
plaintiff  was  deprived  of  receiving  his  share  of  such  earnings  to  an 
uncertain  and  indefinite  amount." 

In  Trenton  Mutual  Life  and  Fire  Insurance  Company  v.  Johnson^  4 
Zabriskie's  Reports,  576,  a  policy  was  taken  out  by  the  plaintiff  on 
the  life  of  one  Van  Middiesworth  for  $1,000,  one-half  payable  to  the 
plaintiff  and  the  other  half  to  Van  Middiesworth.  They  belonged 
to  an  association  called  the  New  Brunswick  and  California  Mining 
and  Trading  Company,  the  capital  stock  of  which  consisted  of  forty- 
five  shares  of  $600  each.  The  company  consisted  partly  of  share- 
holding members  and  partly  of  active  members,  the  shareholders 
being  each  required  to  furnish  a  substitute  to  proceed  to  the  mines 
of  the  company.  The  plaintiff  owned  one  share,  advanced  $600  of 
capital  and  procured  Van  Middiesworth  to  go  out  as  his  substitute, 
which  he  did,  and  acted  as  his  agent  and  substitute;  and  the  assets 
of  the  company  having  been  divided  in  California,  he  received  the 
plaintiff's  share,  and  afterwards  died,  not  having  paid  it  over.  By 
one  of  the  articles  of  the  association  all  treasures  and  all  the  pro- 
ceeds of  the  labor  of  each  member,  and  all  profits,  were  to  go  into 
a  general  fund  for  the  benefit  of  the  association.  To  the  action 
brought  on  the  policy  it  was  objected  that  the  plaintiff  had  no 
insurable  interest  in  the  life  of  the  deceased.     On  this  question  the 


62  FORMATION   OF   THE   CONTRACT. 

court  said:  "  In  the  present  case  Johnson  had  a  direct  interest  in 
the  life  of  his  substitute,  whose  earnings  were  to  constitute  a  part 
of  the  joint  funds,  of  which  he  was  entitled  to  his  share,  an  interest 
fully  equivalent  to  the  interest  of  a  wife  in  the  life  of  her  husband, 
of  a  child  in  that  of  a  parent,  or  a  sister  in  that  of  a  brother.  And 
at  Van  Middlesworth's  death,  although  prior  to  that  time  the  com- 
pany had  been  virtually  dissolved,  he  had  an  interest  m  him  as  his 
creditor  to  the  extent  of  his  share  of  the  assets  in  his  hands." 

In  Bevin  v.  The  Connecticut  Mutual  Life  Insurance  Company,  23 
Conn.  244,  the  plaintiff  had  obtained  a  policy  of  insurance  for  $1,000 
on  the  life  of  one  Barstow,  to  whom  he  had  advanced  $350,  besides 
articles  of  personal  property,  to  enable  him  to  go  to  California  and 
there  labor  for  one  year,  on  an  agreement  that  he  would  account  to 
the  plaintiff  for  one-half  of  his  gains.  The  court  said  that  Barstow 
was  the  plaintiff's  debtor  and  partner,  giving  to  the  plaintiff  an 
interest  in  the  continuance  of  his  life,  as  by  that  means,  through  his 
skill  and  efforts,  the  plaintiff  might  expect  not  only  to  get  back 
what  he  had  advanced,  but  to  acquire  great  gains  and  profits  in  the 
enterprise.  "  All  the  books,"  the  court  added,  "  hold  this  to  be  a 
sufficient  interest  to  sustain  a  policy  of  insurance.  As  to  the  value 
of  this  interest,  we  think  it  must  be  held  to  be  what  the  parties 
agreed  to  consider  it  in  the  policy.  This  was  the  sum  asked  for  by 
the  plaintiff,  and  which  the  defendants  agreed  to  pay  in  case  of 
death,  and  for  which  they  were  paid  in  the  premiums  given  by  the 
insured.  The  policy  must,  we  think,  be  held  to  be  a  valued  policy." 
And  after  referring  to  a  policy  of  insurance  obtained  by  a  sister  on 
her  brother's  life,  where  no  question  seemed  to  have  been  made  as 
to  the  amount,  but  only  whether  it  was  an  interest  which  the  law 
would  recognize,  the  court  said:  "  So,  in  every  case,  where  a  per- 
son on  his  own  account  insures  the  life  of  a  relative,  if  the  sum 
named  in  the  policy  is  not  to  be  the  rule  of  damages,  we  inquire 
what  is  ?  The  impossibility  of  satisfactorily  going  into  the  question 
in  most  cases,  and  especially  where  there  is  nothing  to  guide  the 
inquiry,  and  everything  is  uncertain,  would  lead  us  to  hold  that  a 
policy  like  this  is  a  valued  policy  as  most  consistent  with  the  under- 
standing of  the  parties  and  the  principles  of  law."  ' 

'  "  In  the  case  of  Trinity  Colleog  v.  Ins.  Co.,  113  N.  C.  244,  this  court  said  that 
'  under  certain  conditions  a  partner  has  an  insurable  interest  in  the  life  of  his 
co-partner,'  and  cites  Ins.  Co.  v.  Lucks,  108  U.  S.  198.  There,  the  fact  was  that 
Luchs  had  furnished  to  the  co-partnership  fund  for  his  co-partner  Dillenberg, 
$5,000.  which  was  unpaid.  We  suppose  that  was  the  condition  referred  to  in 
the  opinion  in  the  Trinity  College  case,  under  which  a  partner  might  have  an 
insurable  interest  in   the  life  of  his  copartner.     It  is  true  that  in  Ins.   Co.  v. 


INSURABLE   INTEREST.  63 

APPEAL  OF  CORSON. 
113  Pa.  St.  438.  — 1886. 

Bill  in  equity  wherein  Corson,  executor,  etc.,  is  plaintiff,  and 
the  Provident  Savings  Life  Assurance  Society,  and  James  Garnier 
are  defendants.  The  plaintiff  claimed  as  executor  of  Ellen  McLean's 
estate,  the  avails  of  an  insurance  policy  for  $2,000  issued  upon  her 
life  in  favor  of  James  Garnier.  The  insurance  company  did  not 
defend,  but  paid  the  $2,000  into  court.  The  other  facts  appear  in 
the  opinion. 

Clark,  J.  *  *  *  It  cannot  be  pretended  that  Garnier  had  an 
insurable  interest  in  the  life  of  his  aunt,  by  force  of  the  mere  rela- 
tionship existing  between  them.  No  case  has  been  brought  to  our 
notice  which  carries  the  rule  to  this  e.xtent.  Between  husband  and 
wife,  and  parent  and  child,  the  relationship  is  so  close  and  intimate, 
and  the  mutual  dependence  and  legal  liability  for  support  so  mani- 
fest, that  nothing  more  is  wanting  to  establish  the  insurable  inter- 
est. Garnier,  however,  did  not  hold  any  such  relation  to  Ellen 
McLean,  either  natural  or  assumed.  He  was  simply  her  "  friend 
and  adviser."  He  was  doubtless  a  valuable  friend.  He  had 
advanced  money  to  bring  her  to  Philadelphia.  He  fitted  up,  stocked, 
and  from  time  to  time  replenished,  the  store  at  Tenth  and  Manilla. 
Having  disposed  of  this  for  her  benefit,  he  purchased  the  establish- 
ment on  Fitzvvater,  and,  selling  this,  he  bought  for  her  a  third,  on 
Fifth  bel  Mv  Christian.  She  repaid  Garnier,  however,  for  his  out- 
lays in  her  behalf,  from  time  to  time,  from  the  ordinary  receipts  of 
the  several  stores,  and  from  the  proceeds  of  the  sales. 

The  only  relation  existing  between  James  Garnier  and  Ellen 
McLean  which  could  give  Garnier  an  insurable  interest  in  her  life 
was  that  of  debtor  and  creditor,  and  upon  this  ground  alone  the  case 
must  be  considered.  It  is  not  denied  that  at  the  date  of  the  policy 
Mrs.  McLean  was  indebted  to  Garnier,  for  monev  a'lvanced  and 
expended  in  her  behalf,  in  some  amount  between  $500  and  $750. 
It  is  said,  however,  in  his  answer  that  Garnier  disclaims  as  a  cred- 
itor; that  he  places  his  right  to  the  proceeds  of  the  policy  on  other 
grounds,  and  makes  no  claim  whatever  by  reason  of  any  indebted- 
ness. We  do  not  so  understand  either  the  answer  or  the  evidence 
given  by  the  defendant  in  the  case.  The  bill  charges,  in  the  first 
paragraph,  in  substance,  that  the  policy  was  taken  out  and  applied 

Luchs,  supra,  the  court  said  that  the  continuance  of  the  partnership  was  also  a 
reasonable  expectation  of  advantage  to  Luchs  and  gave  him  an  insurable  inter- 
est in  the  life  of  his  co-parmer.      Bui  we  are  of  the  opinion  that  that  position  is 

a  :;ain5t  the  weight  of  authority."  — Po-mcII  v    Dewey,  123  N.  C.  103,  105. 


64  FORMATION   OF   THE   CONTRACT. 

as  a  collateral  security  to  the  debt  which  Mrs.  McLean  then  owed 
Gamier;  and,  in  the  subsequent  paragraphs,  that  the  debt  having 
been  fully  paid  in  the  lifetime  of  the  assured,  the  proceeds  of  the 
policy  should  pass  into  her  estate.  This  fact  is  specifically  denied, 
the  defendant  in  his  answer  says  it  is  "  not  true  that  the  policy  of 
insurance,  referred  to  in  paragraph  one  of  the  complainant's  bill, 
was  applied  for  and  issued  upon  the  life  of  Ellen  McLean  for  any 
such  reason  or  purpose  as  therein  stated." 

It  is  undisputed,  however,  that  at  the  issuing  of  the  policy  the 
relation  of  debtor  and  creditor  did  exist,  and  to  the  extent  stated. 
The  defendant  having  denied  that  the  policy  was  taken  as  collateral 
security  for  that  debt,  a  question  of  fact  is  thus  raised  to  be  deter- 
mined by  the  evidence.  Upon  examination  of  the  proofs  we  find 
no  evidence  from  which  the  fact  might  be  fairly  inferred.  The 
insurance  was  not  effected  at  the  instance  of  Mrs.  McLean,  but  at 
the  suggestion  of  her  son,  Samuel  McClatchy,  in  whose  name  a 
second  policy  in  $i,ooowasat  the  same  time  issued.  The  premiums 
were  paid  and  the  policy  maintained  by  Garnier.  Indeed,  there  is 
not  the  slightest  proof  in  support  of  the  plaintiff's  hypothesis,  that 
the  policy  was  held  in  trust  for  the  debtor,  and,  in  the  absence  of 
such  proof,  the  presumption  is  that  the  rights  of  the  parties  appear 
upon  the  face  of  the  policy.     Cunningham  v.  Smith,  70  Pa.  St.  450. 

It  has  been  said,  however,  on  the  authority  of  Godsall  v.  fioldero, 
9  East,  72,  that  an  insurance  upon  the  life  of  a  debtor,  in  behalf  of 
a  creditor,  is  in  legal  effect  but  a  guaranty  of  the  debt,  and,  if  the 
debt  is  paid,  the  insurance  is  at  an  end.  But  it  is  now  settled  that 
this  case  is  not  the  law.  It  was  directly  drawn  in  question,  and 
was  expressly  overruled,  in  Da/by  v.  Assurance  Co.  (decided  in  the 
Exchequer  Chamber),  15  C.  B.  365.  The  law  seems  to  be  well  set- 
tled that  it  is  wholly  unnecessary  to  prove  an  insurable  interest  in 
the  life  of  the  assured  at  the  maturity  of  the  policy  if  it  was  valid  at 
its  inception,  and,  in  the  absence  of  express  stipulation  to  the  con- 
trary, the  sum  expressed  on  the  face  of  the  policy  is  the  measure  of 
recovery.  Rawis  v.  Insurance  Co.,  27  N.  Y.  282;  Moicry  v.  Insur- 
ance Co.,  9  R.  I.  346;  Hoyt  V.  Insurance  Co.,  3  Bosw.  440;  Insurance 
Co.  V.  Bailey,  13  Wall.  616. 

The  doctrine  of  all  the  cases  to  which  our  attention  has  been 
called,  is  that, if  the  policy  was  originally  valid,  it  does  not  cease  to 
be  so  by  cessation  of  interest  in  the  subject  of  insurance  unless 
such  be  the  necessary  effect  of  the  provisions  of  the  instrument 
itself.  Therefore,  where  a  husband  insured  his  life  for  the  benefit 
of  his  wife,  and  was  subsequently  divorced,  it  was  held  that  not- 
withstanding the  relation   of  husband  and  wife  no  longer  existed, 


INSURABLE    INTEREST.  6$ 

and  her  insurable  interest  had  thus  ceased,  yet  she  could  recover 
the  full  amount  of  the  policy.  Insurance  Co.  v.  Schae/er,  94  U.  S. 
457.  "  Supposing  a  fair  and  proper  insurable  interest  of  whatever 
kind,"  says  the  court  in  the  case  last  cited,  "  to  exist  at  the  time 
of  taking  out  the  policy,  and  that  it  be  taken  out  in  good  faith,  the 
object  and  purpose  of  the  rule  which  condemns  wager  policies  is 
sufficiently  attained  and  there  is  then  no  good  reason  why  the  con- 
tract should  not  be  carried  out  according  to  its  terms."  To  the 
same  effect  is  McKee  v.  Insurance  Co.,  28  Mo.  383.  All  the  cases 
to  which  we  have  referred,  it  is  true,  arose  from  suits  brought  upon 
the  policies  of  insurance;  but  the  same  principles  apply  where  the 
company,  admitting  its  liability,  has  paid  the  money  into  court  to 
abide  the  result,  and  the  controversy  is  between  the  remaining 
parties. 

In  our  own  case  of  Sco/f  v.  Dickson,  16  Wkly.  Notes  Cas.  181,  [108 
Pa.  6]  our  Brother  Pa.xson,  upon  a  review  of  the  cases,  concludes 
that,  where  one  has  an  insurable  interest  at  the  time  an  insurance  is 
effected  upon  the  life  of  another  for  his  benefit,  the  fact  that  his 
interest  ceases  to  e.xist  at  or  prior  to  the  death  of  the  insured  will  not, 
as  against  the  personal  representatives  of  the  insured,  deprive  him  of 
the  right  to  receive  the  insurance  money.  Therefore  it  was  held 
that  a  surety  on  an  official  bond  had  an  insurable  interest  in  the  life 
of  the  obligor,  and  that  his  right  to  recover  upon  the  policy  was  not 
affected  by  the  fact  that  no  breach  of  the  condition  of  the  bond  had 
ever  occurred.  But  a  merely  colorable,  temporary,  or  dispropor- 
tionate interest  may  present  circumstances  from  which  want  of  good 
faith,  and  an  intent  to  evade  the  rule,  maybe  inferred.  Therefore, 
although  the  relation  of  debtor  and  creditor  may  in  general  be  said 
to  establish  an  insurable  interest,  the  amount  of  the  insurance 
placed  upon  the  life  of  the  debtor  cannot  be  grossly  disproportionate 
to  the  benefit  which  might  be  reasonably  supposed  to  accrue  from 
the  continuance  of  the  debtor's  life,  without  leaving  the  transaction 
open  to  the  imputation  of  being  a  speculation  or  wager  upon  the 
hazard  of  a  life.  Wainwright  v.  Bland,  i  Moody  &  R.  481;  Miller 
V.  Insurance  Co.,  2   E.  D.  Smith,  (N.  Y.)  268. 

The  case  of  Cammack  v.  Lewis,  15  Wall.  643,  is  e.xactly  in  point. 
The  policy  was  taken  out  by  Cammack,  the  creditor,  upon  the  life 
of  Lewis,  his  debtor,  in  the  sum  of  $3,000, — $2,000  for  his  own 
benefit,  and  $1,000  for  the  benefit  of  Lewis.  Lewis,  in  fact,  only 
owed  Cammack  $70,  although  he  voluntarily  and  without  consider- 
ation gave  his  obligation  at  the  time  for  $3,000.  "  If  the  transac- 
tion," says  Mr.  Justice  Miller,  "  as  set  up  by  Cammack  be  true, 
then,  so  far  as  he  was  concerned,  it  was  a  sheer  wagering  policy, 

LAW  OF  INSURANCE  —  5 


66  FORMATION    OF   THE   CONTRACT. 

and  probably  a  fraud  on  the  insurance  company.  To  procure  a 
policy  for  $3,000  to  cover  a  debt  of  $70  is  of  itself  a  mere  wager. 
The  disproportion  between  the  real  interest  of  the  creditor  and  the 
amount  to  be  received  by  him  deprives  it  of  all  pretense  to  be  a 
^o/m ^de  etiort  W  secure  the  debt,  and  the  strength  of  this  propo- 
sition is  not  diminished  by  the  fact  that  Cammack  was  only  to  get 
$2,000  out  of  the  $3,000;  nor  is  it  weakened  by  the  fact  that  the 
policy  was  taken  out  in  the  name  of  Lewis,  and  assigned  by  him  to 
Cammack.  This  view  of  the  subject  receives  confirmation  from 
the  note  e.xecuted  by  Lewis  to  Cammack  for  the  precise  amount  of 
the  risk  in  the  policy,  which,  if  Cammack's  account  be  true,  was 
without  consideration,  and  could  only  have  been  intended  for  some 
pu'-pose  of  deception,  — probably  to  impose  on  the  insurance  com- 
pany." '  See  also  Insurance  Co.  v.  Luchs,  108  U.  S.  498,  2  Sup. 
Ct.  949. 

In  the  case  at  bar  the  policy  was  $2,000.  The  amount  of  the 
indebtedness  was,  at  the  time,  undetermined,  and  therefore  uncer- 
tain. It  is  since  ascertained  to  have  been  between  $500  and 
$750.  Considering  the  character  of  their  business  relations,  the 
unsettled  condition  of  their  affairs,  the  age  of  the  subject  of  insur- 
ance, the  probable  amount  of  premiums  which  might  accrue,  the 
accumulation  from  interest,  we  could  not  say  the  transaction  carries 
with  it  any  inherent  evidence  of  bad  faith.     The  essential  thing  is, 


'  *  We  think  that  Cammack  coulJ  in  equity  and  good  conscience  only  hold 
the  policy  as  security  for  what  Lewis  owed  him  when  it  was  assijjned,  and  such, 
advances  as  he  might  afterwards  make  on  account  of  it."  —  Cammack  v.  Lezvis, 
15  Wall.  643,  648. 

"A  distinction  must  be  drawn  between  a  contract  of  insurance  on  his  own 
life,  made  by  one  who  is  indebted  to  another,  and  who  transfers  the  policy  to 
his  creditor  for  the  security  of  his  debt,  and  a  contract  which  is  made  directly 
by  the  creditor  with  the  insurer  to  insure  the  life  of  his  debtor.  In  the  first 
instance  the  contracting  parties  are  the  person  whose  life  is  insured  and  the 
insurer.  In  that  case  the  creditor  has  no  rights  except  such  as  may  be  given 
to  him  by  the  assignment  of  the  policy.  The  object  of  the  transfer  is  to  secure 
the  payment  of  the  debt  due  the  creditor.  The  assignment  accomplishes  noth- 
ing else;  and  if,  by  any  means,  the  debt  be  paid  prior  to  the  decease  of  the 
debtor,  the  assignment  has  no  force  or  effect,  and  the  original  contract  is  in 
force,  and  the  beneficiaries  named  in  the  contract  will  take  the  proceeds  of  the 
policy.  But  where  a  creditor  contracts  directly  with  the  insurance  company 
for  a  policy  on  the  life  of  his  debtor,  neither  the  debtor  nor  his  representatives 
will  at  any  lime  thereafter  have  any  interest  in  that  contract,  nor,  under  any 
circumstances,  would  either  of  them  be  entitled  to  the  proceeds  of  such  con- 
tract, because  the  contractual  relations  exist  between  the  creditor  and  the 
insurer  independent  of  the  debtor."  —  Little,  J.,  in  Exchange  Bank  v.  Loh,  ■iz 
S.  E.  459.  469  (Ga.). 


INSURABLE   INTEREST.  6^ 

as  stated  by  the  learned  judge  of  the  court  below,  that  the  policy 
should  be  obtained  in  good  faith,  and  not  for  the  purposes  of  specu- 
lation upon  the  hazard  of  a  life  in  which  the  insured  has  no  interest. 

The  case  is  materially  different  from  Gilbert  v.  Afoose,  13  Wkly. 
Notes  Cas.  489.  The  principles  mvolved  in  that  case  are  not  drawn 
in  question  here. 

We  find  no  error  in  the  decree  of  the  court  below,  and  it  is  there- 
fore affirmed.  The  decree  is  affirmed,  and  the  appeal  dismissed,  at 
the  costs  of  the  appellant. 


RITTLER  V.   SMITH. 
70  Md.  261.  —  1889. 

Miller,  J. — In  June,  1886,  Victor  Smith  was  indebted  to  Wil- 
liam H.  Rittler  in  the  sum  of  about  $1,000,  and  Smith  being  insol- 
vent, Rittler  took  out  certificates  of  insurance  on  Smith's  life,  in 
four  several  mutual  aid  associations,  aggregating  on  their  face  the 
sum  of  $6,500.  These  certificates  were  all  in  favor  of  Rittler  and 
he  paid  all  the  premiums  or  assessments  thereunder.  Smith  died 
in  March,  1887,  and  Rittler  collected  from  these  insurances  the  sum 
of  $2,124.82,  which  appears  to  have  been  all  that  could  have  been 
collected  according  to  the  terms  of  the  certificates,  and  the  financial 
condition  of  the  associations.  Deducting  from  this  sum  the  debt 
and  interest  due  Rittler,  the  premiums  he  had  paid,  and  the  costs 
and  expenses  of  effecting  the  insurances,  there  remained  a  balance 
of  $474.53,  as  of  the  isL  of  June,  1887.  On  the  3d  of  October  fol- 
lowing, letters  of  administration  on  Smith's  estate  were  granted  to 
an  administratrix,  who  thereupon  filed  her  bill  claiming  this  balance 
as  belonging  to  the  estate  of  the  decedent.  In  his  answer  Rittler 
denied  this  claim,  and  insisted  that  the  money  belonged  to  him. 
The  case  was  heard  on  bill  and  answer,  and  the  court  below  decreed 
in  favor  of  the  complainant.     From  this  decree  Rittler  has  appealed. 

The  question  as  thus  presented  is  an  interesting  one,  is  of  first 
impression  in  this  State,  and  has  been  very  ably  argued.  On  the 
part  of  the  appellant  it  is  contended  that  where  a  creditor  with  his 
own  money  and  for  his  own  account,  effects  and  keeps  up  an  insur- 
ance on  the  life  of  his  debtor,  the  whole  of  the  proceeds  belong  to 
him  unless  it  appears  that  he  has  gone  into  It  for  the  mere  purpose 
of  speculation,  which  in  this  case  is  expressly  negatived  by  the 
answer,  the  averments  of  which  must  be  taken  as  true,  the  case 
having  been  heard  on  bill  and  answer.  On  the  other  hand,  counsel 
for  the  appellee  contend  that  where  the  creditor  receives  more  than 


68  FORMATION   OF   THE    CON  IRACT. 

enough  to  reimburse  him  for  his  debt  and  outlay,  with  interest,  he 
will,  as  to  the  balance,  be  regarded  as  a  trustee  for  the  personal 
representative  of  the  debtor;  that  the  law  says  to  the  creditor  in 
such  a  case,  "  you  may  protect  yourself;  you  may  by  insuring  your 
debtor's  life  secure  your  debt  with  all  outlay  and  expenses;  you 
may  make  yourself  whole,  but  you  shall  not  speculate  on  his  death; 
you  shall  not  have  a  greater  direct  pecuniary  interest  in  his  death 
than  you  may  have  in  his  life."     *     *     * 

If  such  then  be  the  nature  of  a  life  insurance  contract,  and  if  a 
bona  fide  assignee  for  value,  though  a  stranger,  may  recover  and 
hold  the  whole  amount  for  his  own  use,  why  may  not  a  creditor  who 
in  pursuance  of  a  bona  fide  effort  to  secure  payment  of  his  debt, 
insures  the  life  of  his  debtor  and  takes  the  policy  in  his  own  name 
or  for  his  own  benefit,  be  entitled  to  hold  all  he  can  recover?  He 
is  in  fact  the  owner  of  the  policy,  takes  the  risk  of  the  continued 
solvency  of  the  insurance  company,  and  is  obliged  to  keep  the 
policy  alive  by -paying  the  annual  premiums  during  the  life  of  the 
debtor,  and  the  latter  is  under  no  obligation  to  do  anything,  and  in 
fact  does  nothing  in  this  respect.  If  he  pays  the  debt  to  his  cred- 
itor, he  has  only  discharged  his  duty,  and  what  interest  has  he  in  the 
policy  or  in  what  his  creditor  may  recover  upon  it?  In  a  recent 
English  case  it  was  held  that  a  creditor  who  had  insured  the  life  of 
his  debtor  could  retain  all  the  sums  he  had  received  from  the  poli- 
cies, without  accounting  for  them  to  the  representatives  of  the 
debtor,  unless  there  \vas  distinct  evidence  of  a  contract  to  the  effect 
that  the  creditor  had  agreed  to  effect  the  policy,  and  that  the  debtor 
had  agreed  to  pay  the  premiums,  in  which  case  only  will  the  policy 
be  held  in  trust  for  the  debtor.  Bruce  v.  Garden,  Law  Rep.,  5 
Chancer/  Appeals,  32.  This  is  the  latest  English  authority  to  which 
we  have  been  referred,  and  was  decided  by  Lord  Chancellor  Hath- 
erley  on  appeal.  In  that  case  the  amount  received  from  the  policies 
by  the  creditor  was  nearly  twice  as  much  as  the  debt  due  him  by 
his  debtor. 

We  agree  that  there  may  be  such  a  gross  disproportion  between 
the  debt  and  the  amount  of  the  policy,  as  to  stamp  the  transaction 
as  indicating  upon  its  face  want  of  good  faith,  and  as  a  mere  specu- 
lation or  wager.  The  case  of  Cammack  v.  Lewis  [15  Wall.  643]  affords 
an  instance  of  such  gross  disparity,  but  no  general  rule  on  this  subject 
has  as  yet  been  laid  down  by  the  courts,  and  it  is  probably  belter  to 
leave  each  case  to  depend  on  its  own  circumstances.  The  disparity 
between  the  debt  of  $1,000  and  $6,500,  the  aggregate  of  the  sums 
named  in  the  certificates,  is  certainly  great,  but  upon  examination 
it  is  more  apparent  than  real.     The  answer,  which  we  must  take  as 


INSURABLE    INTEREST.  69 

true,  shows  bona  fides  on  the  part  of  the  creditor.  The  policies 
were  all  in  mutual  aid  associations,  where  mortuary  dues  are  paid  by 
assessments,  and  where,  of  course,  the  sum  to  be  realized  depends 
upon  the  number  and  solvency  of  the  members.  One  of  the  cer- 
tificates for  $2,000  contained  a  condition  that  only  one-half  should 
be  paid  if  the  assured  should  die  within  one  year  from  its  date,  an 
event  which  actually  occurred.  Another  expressly  provided  that 
he  should  receive  an  amount  not  exceeding  $2,000,  but  according  to 
the  members  liable  to  assessment  on  this  certificate,  and  from  that  he 
received  according  to  its  terms  only  $250.  Another  of  the  associa- 
tions was  in  financial  difficulties  and  he  compromised  his  claim  on  a 
certificate  for  $1,000,  and  received  only  $132.82.  By  taking  out 
these  certificates  he  became  liable  to  be  assessed  as  a  member,  and 
during  the  short  time  they  were  running  (from  June  to  the  follow- 
ing March)  he  paid  in  this  shape  and  in  premiums  the  sum  of  $351.75. 
In  view  of  the  character  of  these  certificates  and  of  the  associations 
by  which  they  were  issued,  we  cannot  say  the  disproportion  between 
the  debt  and  the  real  amount  and  value  of  the  insurances  is  so  great 
in  this  case  as  to  warrant  a  sentence  of  condemnation  against  the 
transaction  as  being  a  mere  speculation  or  wager  on  the  life  of  the 
debtor. 

Without  attempting  a  review  of  all  the  numerous  decisions  on 
this  subject  we  simply  refer  in  support  of  our  views  to  the  following 
cases,  in  addition  to  those  already  cited:  Mutual  Life  Ins.  Co.  v. 
Allen.,  138  Mass.  24;  Clark  v.  Allen,  11  R.  I.  439;  Olmstead  x.  Keyes 
et  al.,  85  N.  Y.  593;  Amick  v.  Butler.,  iii  Ind.  578;  Johtison  et  al.  v. 
Van  Epps,  no  111.  562;  Appeal  of  Corson,  113  Pa.  St.  438.  And  among 
the  text-writers  to  Bliss  on  Life  Ins.,  §  30,  and  Life  Insurance,  Law 
of  Assignments  (Hine  &  Nichols),  81,  82.  On  the  whole  we  are  of 
opinion  the  weight  of  reason  as  well  as  of  authority  sustains  the 
appellant's  claim.  We  shall  therefore  reverse  the  decree  appealed 
from  and  dismiss  the  appellee's  bill. 

Decree  reversed,  and  bill  dismissed. 


COOPER  V.   SHAEFFER. 
II  Atl.  Rep.  (Pa.)  548.  —  1887. 

Error  to  Court  of  Common  Pleas,  Lebanon  County;  McPherson, 
Judge. 

Case  by  Allen  Shaeffer,  administrator  of  Daniel  Weaver,  deceased, 
against  Jacob  C.  Cooper,  to  recover  the  excess  of  a  policy  of  insur- 
ance  on   the   life   of  said  Daniel  Weaver,  assigned  to  defendant's 


70  FORMATION   OF   THE   CONTRACT. 

assignor  as  security  for  a  debt,  on  the  ground  that  the  transaction 
was  a  wager.  The  facts  as  they  appeared  on  the  trial  are  sufficiently 
stated  in  the  opinion.  Verdict  for  plaintiff,  $i ,  100.04,  and  judgment 
thereon;  whereupon  defendant  took  this  writ. 

Stlrrkxt,  J.  —  It  is  conceded  that  the  policy  of  $3,000  o  i  the 
life  of  Weaver  was  taken  out  and  immediately  assigned  to  Blouch 
for  the  purpose  of  securing  a  debt  of  $100,  due  by  the  former  to 
the  latter.  Subsequently  one-half  interest  in  the  policy  was  assigned 
by  Blouch  to  plaintiff  in  error,  but  Weaver  was  not  in  any  manner 
a  party  to  that  transaction.  On  the  death  of  Weaver  the  insurance 
company,  recognizing  its  liability  for  the  amount  insured,  paid 
$1,800  thereof  to  Cooper,  and  the  residue  to  Blouch.  In  view  of 
the  undisputed  facts,  the  learned  judge  of  the  Common  Pleas  held 
that  the  disproportion  between  the  insurance,  $3,000,  and  the  debt, 
Sioo,  was  so  great  as  to  require  him  to  say,  as  matter  of  law,  that 
the  transaction  w'as  a  wager,  and  that  the  assignees  of  the  policy 
had  no  right  to  retain  more  of  the  insurance  money  received  by 
them  than  the  amount  of  the  debt,  plus  the  premiums  paid  and 
interest  thereon.  In  this  he  was  clearly  right.  The  disproportion 
is  so  great  as  to  make  the  insurance  a  palpable  wager,  and  no  court 
should  hesitate  to  declare  it  so  as  matter  of  law.  It  has  heretofore 
been  correctly  said  that  the  sum  insured  must  not  be  dispropor- 
tionate to  the  interest  the  holder  of  the  policy  has  in  the  life  of  the 
insured,  but  we  have  never  found  it  necessary  to  adopt  any  rule  by 
which  such  disproportionate  interest  may  be  determined.  Speaking 
for  himself,  our  Brother  Paxson,  in  Grant  v.  Kline  19  Wkly.  Notes 
Cas.  260,  9  Atl.  150,  suggests  that  a  policy  taken  out  by  a  creditor 
on  the  life  of  his  debtor  ought  to  be  limited  to  the  amount  of  the 
debt  with  interest,  and  the  amount  of  premiums  with  interest 
thereon,  during  the  expectancy  of  the  life  insured,  according  to 
the  Carlisle  tables.  This  appears  to  be  a  just  and  practicable 
rule.'     *     *     * 

Judgment  affirmed. 

'  "  The  test  thai  the  amount  of  a  policy  taken  out  to  secure  a  debt  must  not 
be  out  of  proportion  to  the  amount  of  the  debt  with  added  premiums  and  interest 
thereon  will  not  stand  scrutiny,  for  every  one  carrying  the  burden  of  keeping 
up  a  life  policy  may,  whether  a  debt  b;  thereby  secured  or  not,  suffer  loss  by 
paying  out  more  than  is  finally  received  on  the  policy.  In  the  case  of  a  man 
who  insured  his  life  for  the  benefit  of  his  wife,  and  paid  out  in  premiums  more 
than  the  insurance  company  paid  to  her  after  his  death,  the  loss  would  be  the 
difference  between  the  sum  of  the  premiums,  with  interest,  and  the  proceeds  of 
the  policy.  If  a  creditor  who  held  as  collateral  security  a  policy  of  life  insur- 
ance, and  paid  ihe  premiums  under  a  contract  with  the  debtor  to  be  reimbursed 
therefor  out  of  the  fund  to  be  realized  by  the  payment  of  the  policy,  paid  tu  t!i; 


INSURABLE    INTEREST.  yi 

e.  Reinsurance. 
GOODRICH  AND  HICK'S  APPEAL. 

109  Pa.  St.  523.  —  18S5. 

Appeal  from  the  Court  of  Common  Pleas  No.  i,  of  Philadelphia 
County:  of  July  Term,  1884,  No.  128. 

This  was  an  appeal  bv  Henry  C.  Goodrich  and  William  B.  Nevins, 
trading  as  Goodrich  &  Nevins,  and  Ralph  Hicks.  Richard  Sinnot 
and  Alfred  Grissom,  Jr.,  owners  of  the  steamer  "  Mary  Bell,"  from 
a  decree  of  said  court,  confirming  the  report  of  an  auditor  appointed 
to  report  distribution  of  a  fund  constituting  assets  of  the  Penn  Fire 
Insurance  Company,  an  insolvent  corporation. 

The  appellants  had  suffered  loss  under  policies  of  fire  insurance 
held  by  them  in  said  company,  and,  for  the  reasons  hereinafter 
mentioned,  claimed  a  preference  over  general  creditors  of  the  com- 
pany in  the  distribution  of  this  fund;  but  the  court  below  decided 
that  their  right  to  participate  was  only  pro  rata,  with  general 
creditors. 

Mr.  Justice  Clark. — The  only  question  raised  by  the  several 
assignments  of  error,  in  this  case,  is  whether  or  not,  in  the  distribu- 
tion of  the  assets  of  the  Penn  Fire  Insurance  Company  of  Philadel- 

company  more  than  it  returned  when  the  debtor  died  (which  would  inevitably 
be  the  case  in  the  event  that  the  latter  lived  out  his  e.vpectancy,  and  all  pre- 
miums up  to  that  time  were  duly  met),  this  creditor,  if  the  collaieral  was  the 
only  source  to  which  he  could  look  for  satisfaction,  would  lose  the  difference 
between  the  amount  received  on  the  policy  and  the  amount  resulting  from  add- 
ing the  sums  representing  the  premiums,  the  interest  thereon,  ai!(/  the  debt;  and 
this  would  be  I  rue  whether  the  debt  was  greater  small.  If,  for  instance,  one  man 
loaned  to  another  $10,  and  insured  the  latter's  life  in  the  sum  of  $50,000  to  secure 
the  debt,  the  creditor  undertaking  to  pay  the  premiums,  and  the  debtor  (whether 
young  or  old)  lived  out  his  expectancy,  and  died,  leaving  no  assets  but  the 
insurance  money,  the  creditor  would  certainly  lose  the  difference  between  the 
face  of  the  policy  and  the  sum  of  the  premiums  and  the  interest  thereon,  and 
W3uld  lose  also  the  $10  and  the  interest  on  that  sum.  If  the  debt  thus  created 
was  $25  000,  the  creditor's  loss  would,  in  that  case,  be  greater  by  $24,990  and 
intaiest  than  in  the  other.  There  would  be  no  difference  in  principle  between 
the  I  wo  cases.  It  is  therefore  to  be  regretted  that  the  Pennsylvania  court,  while 
declaring  that  there  should  be  '  a  fixed  rule  '  for  determining  when  a  creditor 
was  and  when  he  was  not  obtaining  an  '  excess  of  insurance,'  did  not  succeed 
in  evolving  a  more  satisfactory  one.  The  truth  is,  there  can  be  no  sound  rule 
on  the  subject  which  does  not  recognize  the  truth  of  the  proposition  that  when- 
ever a  creditor  stipulates  for  receiving  more  than  indemnity  upon  a  policy  insur- 
ing his  debtor's  life  he  is  engaged  in  a  speculative  venture,  the  gain  from 
which,  if  successful,  would  be  represented  by  the  excess  of  the  sum  derived 
from  the  policy  over  the  amount  of  the  'indebtedness'  thereby  secured."  — 
Exchange  Bank  v.  Lo/i,  104  Ga.  446,  457. 


72  FORMATION   OF   THE   CONTRACT. 

phia,  in  the  hands  of  an  assignee,  the  appellants  are  entitled  to  any 
preference  over  the  general  creditors  of  the  company.  The  prefer- 
ence claimed  is  as  to  the  fund  of  $6,000  received  on  settlement  or 
compromise,  with  the  French  corporation  known  as  "La  Caisse 
Generale  des  Assurances  Agricoles  et  centre  I'lncendie."  It  is 
unfortunate,  perhaps,  that  the  formal  policy  provided  for  in  the 
agreement,  between  the  Caisse  Generale,  etc.,  and  the  Penn  Com- 
pany was  never  issued,  as  the  true  intent  of  the  contracting  parties 
would  doubtless  have  been  therein  more  fully  disclosed;  but  this 
was  not  done,  and  we  must  learn  that  intent  and  determine  the 
rights  of  the  contending  parties,  upon  the  fair  "  reading  and  con- 
struction of  the  executory  contract,  evidenced  by  the  writings  of 
26th  and  28th  February,  1876." 

In  the  agreement  of  26th  February,  1876,  the  receipt  of  $10,000 
is  acknowledged;  in  consideration  of  which  "a  policy  of  insur- 
ance "  is  to  be  issued  by  La  Caisse  Generale,  etc.,  "  re-insur- 
ing the  outstanding  risks  of  the  Penn  Fire  Insurance  Company," 
etc. ;  "  the  amount  over  and  above  $10,000,  necessary  to  '  re-insure  ' 
its  outstanding  risks  to  be  paid,"  etc.  In  the  more  full  and  formal 
contract,  made  two  days  later,  it  is  provided  that  the  "  policy  of 
re-insurance  "  to  be  issued  shall  be  subject  to  certain  conditions, 
etc. 

Re-insurance  is  properly  applied  to  an  insurance  effected  by  one 
underwriter  with  another,  the  latter  wholly  or  partially  indemnify- 
ing the  former  against  the  risks  which  he  has  assumed;  that  is  to 
say,  after  an  insurance  has  been  effected,  the  insurer  may  have  the 
subject  of  insurance  re-insured  to  him  by  some  other.  There  is  in 
such  case,  however,  no  privity  between  the  original  insured  and  the 
re-insurer;  the  latter  is  in  no  respect  liable  to  the  former,  as  a 
surety  or  otherwise,  the  contract  of  insurance  and  of  re-insurance 
being  totally  distinct  and  disconnected.  But  whilst  the  contract  is 
one  of  indemnity  simply,  in  which  the  insurer  is  to  be  protected 
to  the  extent  of  his  loss,  when  the  loss  is  incurred  and  ascer- 
tained, the  re-insurer  must  pay  the  amount.  The  insurer  may  at 
once,  without  payment  to  the  original  assured,  resort  to  his  action. 
Fatne  Ins.  Co.'s  Appeal,  ^i  Pa.  St.  396.  Even  if  the  insurer  fail,  or 
become  insolvent  so  that  his  insured  receives  only  a  dividend,  how- 
ever small,  the  re-insurer  can  gain  nothing  by  this,  but  must  pay 
the  amount  of  the  loss  to  the  first  insurer.  Hastie  v.  De  Feysier,  3 
Caines,  190;  Hone\.  Mui.  Saf.  Ins.  Co.,  i  Sand.  Sup.  Ct.  N.  Y.  137, 
affirmed  in  Court  of  Appeals,  siih  ncn.  Miit.  Saf.  Co.  v.  Hone,  2 
Comst  235;  3  Kent  Com.  279;  Marshall  on  Ins.  143.  So  in  Hercken 
rath  V.  Am.  Ins.  Co.,  3  Barb.  (N.  Y.)  Ch.  63.     Chancellor  Walworth 


INSURABLE   INTEREST.  73 

decided  that  where  an  insurance  company  has  underwritten  a  policy, 
and  afterwards  causes  itself  to  be  re-insured,  and  after  the  loss  of 
the  property  insured,  such  company  becomes  insolvent,  the  person 
originally  insured  has  no  equitable  lien  upo.i  the  sum  of  money  due 
on  the  contract  of  re-insurance;  but  the  fund  belongs  to  all  the 
creditors  of  the  insolvent  company  ratably."  These  are  familiar 
principles  of  insurance  law,  and  are  not  now  anywhere  doubted. 

If,  therefore,  the  contract  between  La  Caisse  Generale,  etc,  and 
the  Perm  Fire  Insurance  Company  was  for  a  policy  of  re-insurance, 
properly  so  called,  the  appellants  could  have  no  preferable  claim  or 
lien  upon  the  fund  in  question,  although  the  Penn  Company  was 
admittedl}?  and  hopelessly  insolvent. 

It  is  contended,  however,  by  the  appellants  that  the  contract  in 
question,  when  read  in  the  light  of  the  facts  attending  its  exe- 
cution, cannot  in  any  strict  sense  be  considered  a  contract  for 
re-insurance;  that  it  was  not  intended  to  provide  indemnity  for  the 
company,  but  to  the  individual  policy-holders,  and  that  the  policy- 
holders can  claim  the  advantage  of  this  so-called  re-insurance  for 
themselves,  directly  and  exclusively;  that  the  term  "  re-insurance  " 
was  not  used  in  its  legal  or  technical  sense,  but  in  a  different  sense, 
defined  by  the  particular  facts  which  induced  the  creation  of  the 
contract,  and  that  the  re-insurance  by  the  Caisse  Generale,  etc., 
was  in  fact,  although  not  so  expressed,  a  conditional  assumption  of 
the  business  of  the  Penn  Company. 

It  was  competent,  we  think,  for  the  Penn  Company,  acting  in  the 
interest  of  its  general  policy-holders  with  or  without  authority,  in 
view  of  insolvency  and  without  fraud,  to  effect  an  indemnity  for 
their  individual  protection,  in  case  of  loss  {Glen  v.  Hope  Mut.  Co., 
56  N.  Y.  379;  Fischer  v.  Same,  69  N.  Y.  161),  which,  even  after 
loss,  they  might  ratify  and  approve  {Fleming  v.  Mar.  Ins.  Co.,  4  Wh. 
59;  Stilwellv.  Staples,  19  N.  Y  405;  i  Amer.  Lead.  Cas.  844);  and, 
if  the  insurance  was  in  their  interest,  directly  for  their  benefit,  and 
free  from  any  additional  burden  or  obligation  on  their  part,  ratifi- 
cation might  be  presumed.  But  we  fail  to  find  anything  in  the 
words  of  the  contract,  in  the  special  circumstances  attending  its 
creation,  in  the  nature  of  the  transaction  itself,  or  in  any  rule  of 
public  policy,  that  would  justify  us  in  saying  that  the  contract  was 
any  other  than  a  contract  of  re-insurance,  in  the  proper  sense  of 
that  term.  The  contract  was  written  by  and  between  persons  on 
both  sides,  actually  engaged  in  the  business  of  insurance,  persons 
conversant  doubtless  with  the  meaning  of  terms  employed  in  the 
practice  of  insurance,  and  the  presumption  is  a  fair  and  reasonable 
one,  that  words  of  technical  or  special  import  were  by  them  prop- 


74  FORMAIION   OF   THE   CONTRACT. 

erly  applied.  The  words  "  re-insure  "  and  "  re  insurance  "would 
therefore  seem  in  the  first  instance  at  least  to  characterize  the  con- 
tract and  to  point  out  the  object  and  purpose  of  the  parties.  The 
proper  signification  of  these  terms  would,  of  course,  vary  with  the 
clearly  manifested  intention  of  the  parties.  B.it  the  contract  is 
u''th  the  Penn  Company,  for  a  consideration  moving  from  it  pro- 
V'iing  for  a  policy  to  the  Penn  Company,  to  re-insure  its  risks. 
There  is  no  provision  whatever,  expressed  in  the  contract,  for  the 
individual  indemnity  of  the  policy-holders  nor  for  the  insurance  of 
their  property  for  them;  the  re-insurance  is  expressly  upon  the 
"  outstanding  risks  "  of  the  company.  The  contract  of  re-insurance, 
in  some  sense  perhaps  operates  upon  the  property  itself  rather  than 
the  risk,  but  the  fact  that  the  policy  was  to  be  upon  the  "  risks," 
indicates  that  it  was  the  company's  insurable  interest  in  the  prop- 
erty, which  formed  the  basis  of  the  insurance. 

It  is  true,  that  e.xcept  for  the  appellant's  losses  by  fire,  the  fund 
of  $6,000  would  not  have  been  realized,  but  this  is  incident  to  all 
cases  of  re-insurance.  It  is  true,  also,  that  the  re-insurance  was  of 
all  the  outstanding  risks  of  the  company,  and  not,  as  is  usually  the 
case,  of  any  particular  part  of  them;  but  whether  a  company  shall 
re-insure  the  whole  or  only  a  part  of  its  risks,  is  a  question  of  policy 
for  the  company,  dependent  upon  its  purposes  for  the  future,  or  its 
circumstances.  If  the  underwriter  wishes  to  change  his  business. 
or  to  quit  the  country,  or  to  avert  insolvency,  he  may  choose  to 
re-insure  the  whole;  under  different  circumstance  he  may  choose 
to  indemnify  himself  as  to  part  only.  The  provisions  that  the  Penn 
Company  "  will  turn  over  to  the  Caisse  Generale  its  original  regis- 
ters, books,  reports,  and  other  papers,  in  any  way  relating  to  the 
policies  thereby  insured,"  and  "  that  the  Caisse  Generale  will 
assume  the  care  and  expense  of  the  adjustment  of  all  losses  which 
may  occur  under  the  policies  of  the  said  Penn  Fire  Insurance  Com- 
pany, which  are  thereby  to  be  re-insured,"  arc  consistent,  we  think, 
with  either  theory  of  the  case  —  as  consistent  with  one  as  with  the 
other;  and  they,  therefore,  prove  nothing  either  way.  Such  a  course 
of  proceeding  may  be  rare,  but  cases  are  rare  perhaps  when  the 
re-insurance  is  upon  the  whole  list  of  the  underwriters'  risks,  and 
where  this  is  the  case  there  can  certainly  be  nothing  unreasonable  in 
the  provision.  We  think  there  is  nothing  on  the  face  of  the  con 
tract  itself,  to  give  it  the  effect  claimed  for  it,  and  we  can  discover 
nothing  in  the  facts  which  led  up  to  its  execution,  which  would 
evidence  any  intention  of  the  parties  different  from  what  is  plainly 
expressed. 

The  inducing  cause  of  the  contract,  doubtless,  was  the  proceeding 


INSURABLE    INTEREST.  75 

instituted  by  the  Attorney-General,  at  the  instance  of  the  Insurance 
Commissioner.  After  the  order  to  suspend  business,  the  company 
was  permitted  to  effect  a  re-insurance  of  its  outstanding  policies, 
etc  ,  for  sixty  days,  with  the  hope  that  its  available  funds  woul.l 
prove  sufificient  to  complete  the  re-insurance,  at  the  expiration  of 
that  time.  Had  these  hopes  been  realized,  it  is  probable  that  the 
decree  of  dissolution,  during  the  period  of  re-insurance  at  least 
might  not  have  been  entered.  The  commissioner,  i.i  his  report 
refers,  it  is  true,  to  this  contract  as  an  effort  of  the  company  to 
"secure  its  policy-holders  byre-insurance."  But  if  the  contract 
were,  in  fact,  otherwise,  the  report  of  the  commissioner,  subse- 
quently made,  could  not  change  its  provisions,  or  alter  its  effect:. 
The  Caisse  Generale,  etc.,  in  paying  certain  of  the  losses  directly 
to  the  policy-holders,  would  seem,  subsequently  to  have  put  a  con- 
struction on  the  contract,  conformable  to  the  appellants'  claim;  b.  t 
the  effect  of  this  is  certainly  overcome  by  the  fact  that  the  Pen  i 
Company  repudiated  this  payment  by  bringing  suit  against  the  Caisse 
General  ,  etc.,  and  the  fund  now  for  distribution  is  the  result  of 
that  action. 

To  sustain  the  appellants'  contention  in  this  case,  the  facts  should 
clearly  appear,  either  by  the  contract,  or  otherwise  in  the  transac- 
tion, that  the  indemnity  provided  was  to  the  policy-holders  directly, 
and  in  the  absence  of  such  proof  their  claim  of  preference  must  be 
disregarded. 

The  case  of  Glen  v.  Hope  Mitt.  Ins.  Co.,  supra,  is  greatly  relied  on 
by  the  appellants,  but  that  case  is  materially  different  from  this. 
By  a  contract  duly  executed,  the  Hope  agreed  to  re-insure  the 
Craftsman  Company,  on  all  risks  for  which  its  policies  were  out- 
standing; and,  also,  to  assume  all  such  policies,  and  to  pay  the 
holders  thereof  all  such  sums  as  the  Craftsman  might,  by  force  of 
such  policies,  become  liable  to  pay.  The  engagement  to  the  policy- 
holders was  direct  and  express,  and  the  liability  was  therefore  direct 
and  exclusive.  This  case  was  followed  by  Fischer  v.  Hope  Mat. 
Ins.  Co.,  supra,  which  was  another  action  on  the  same  contract,  and 
the  rulings  in  the  former  case  were  in  the  latter  recognized  and 
approved. 

The  decree  of  the  Court  of  Common  Pleas  is  affirmed,  and  the 
appeal  is  dismissed  at  the  costs  of  the  appellant." 

'  "  We  can  understand  how  the  reinsured  party,  where  the  amount  of  his 
liability  has  been  ascertained,  may  be  admitted  to  recover  to  the  full  extent  of 
the  liability  so  lang  as  the  liability  to  pay  continues,  although  he  may  not  have 
made  payment,  or  may  be  insolvent  and  unable  to  pay.  But  where  the 
liability    has  become    actually  discharged    by    the    payment  of  a  sum    less  in 


76  formation  of  the  contract. 

111.  Form  of  the  Contract. 

a.  Oral  or  Written. 

CAMPBELL  V.   THE  AMERICAN  FIRE  ISURANCE  CO. 

73  Wis.   ioo.  —  i8S8. 

Action  upon  a  contract  for  insurance  against  fire. 

Taylor,  j  *  H'  *  Qp  ^j-jg  trial,  it  was  clearly  established  by 
the  evidence  of  Burr  Sprague  that  he  was  the  agent  of  the  defend- 
ant, and  had  full  authority  to  take  risks  against  fire  for  said  com- 
pany, and  issue  their  policies  covering  such  risks.  And  no  conten- 
tion is  made  on  the  hearing  of  this  appeal  that  such  agent  could  not 
have  bound  the  company  by  issuing  a  policy  of  insurance  upon  the 
hay  in  question. 

The  evidence  in  regard  to  the  contract  of  insurance  is  the  evi- 
dence of  the  plainti*T  and  of  said  agent,  Sprague.  The  plaintiff  testi- 
fied as  follows:  "  I  saw  Mr.  Sprague  about  that  hay  on  the  2d  day 
of  July,  1887,  about  five  o'clock,  p.  M.  He  was  sitting  on  a  dry- 
goods  box  in  front  of  Terry's  store.  I  had  a  conversation  with  him 
about  that  hay.  I  said  '  Sprague,  I  have  got  a  little  baled  hay  that 
I  want  to  get  insured.*  He  says,  '  Where  is  your  hay?  '  I  told  him 
it  was  in  Jake  Bush's  tobacco  shed.  He  said,  '  How  far  is  that 
shed  from  his  house?  '  I  told  him  the  shed  was  in  the  northeast 
corner  of  the  block,  and  his  house  was  in  the  northwest  corner,  — 
just  across,  opposite.  He  says,  '  How  much  have  you  got,  and 
how  much  insurance  do  you  want  on  it?  '  I  said  $500.  He  said, 
'  I  can  write  you  in  the  American  Fire  Insurance  Company,  the 
same  that  your  ice-house  was  insured  in;  '  or  he  first  asked.  '  How 
long  do  you  want  it?  '  I  told  him  two  or  three  months,  and  he  says, 
'You  better  have  it  for  six  months.  It  will  cost  you  no  more 
for  six  months  than  it  will  for  two  or  three  months.'  '  Well,'  says 
I,  '  all  right.'  Says  he,  '  I  will  write  you  the  risk  for  $3.'  He  says, 
'  Really,  the  rates  would  be  only  $2.50,  but  I  cannot  write  a  policy 
for  less  than  $3.'  I  says,  '  That  is  all  right;  that  was  cheaper  than 
I  expected  to  get  it.'     I  told  him  I  was  fearful  about  the  4th  of  July. 

amount,  it  is  difficult  to  perceive,  on  principle,  why  the  sum  paid  in  discharge 
of  the  liability  should  not  be  taken  as  the  amount  of  damage  sustained,  and  as 
the  measure  of  indemnity  to  be  recovered  under  a  contract  which  is  confessedly 
one  of  indemnity.  Notwithstanding,  then,  the  aiverse  authority  that  is  10  be, 
found,  we  are  disposed  to  hold,  on  principle,  as  we  regard  it,  that  $600,  the  sum 
paid  by  the  reinsured  company  in  discharge  of  its  liability  for  $6,000,  was  the 
actual  loss  it  sustained  and  the  extent  of  the  recovery  which  should  be  had." 
—Illinois  Mut.  Fire  Ins.  Co.  v.  Andes  Ins.  Co.,  67  111.  365. 


FORM   OF   THE   CONTRACT.  'J'j 

It  was  so.  dry  that  it  might  get  on  fire.  'Oh,'  said  he,  'I  will 
have  the  policy  take  effect  on  the  4th  day  of  July  at  noon.'  "  The 
3d  of  July  was  on  Sunday. 

Sprague's  testi.mony  on  the  same  subject  is  as  follows:  "  On 
July  2d,  1887,  Mr.  Campbell  told  me  he  wished  some  insurance  on 
some  hay  he  had, — an  amount  of  hay  on  which  he  wished  insur- 
ance. I  asked  him  as  to  the  condition  of  the  hay,  whether  it  was 
loose  hay  or  baled  hay,  and  he  said  it  was  all  baled  hay.  I  asked 
him  where  it  was.  He  said  it  was  in  the  Bush  barn,  on  what  is 
known  as  the  '  Bush  block;  '  and  I  asked  him  how  much  he  had 
there,  and  he  said  $800  or  $1,000  worth,  somewhere  along  there. 
I  asked  him  how  much  insurance  he  wanted.  He  said  he  wanted 
$500  insurance.  I  asked  him  if  he  pressed  hay  there  in  the  barn. 
He  said,  '  No;  '  he  pressed  it  away  from  there,  and  stored  it  there. 
I  asked  him  if  there  was  any  loose  hay  in  the  barn  — unpressed  hay. 
He  said,  '  No.'  I  then  asked  him  if  he  knew  the  distance  between 
that  barn  and  the  house,  and  particularly  whether  it  was  more  than 
100  feet.  I  said  to  Mr.  Campbell  that  insurance  companies  did  not 
like  to  take  insurance  on  barns  or  property  in  barns,  except  private 
barns  in  connection  with  dwellings,  and  I  did  not  know  whether  the 
company  would  carry  it,  — the  company  that  I  had.  He  asked  me 
the  rate,  and  I  asked  him  how  long  he  wanted  to  insure.  He  said 
six  months.  I  told  him  that  the  rate  for  a  private  barn  in  connec- 
tion with  a  dwelling  was  the  same  as  a  dwelling,  — one  per  cent, 
for  three  years,  or  one-half  per  cent,  for  one  year;  that  this  was 
worth  more,  and  I  would  fix  the  rate  at  one-half  per  cent,  for  half  a 
year,  or  $2.50  for  $500;  and  then  I  added  that  companies  did  not 
like  to  have  a  policy  written  for  less  than  $3,  and  I  would  have  to 
charge  him  $3  anyway.  He  asked  me  if  I  would  write  it  for  that. 
I  said  I  would,  but  I  doubted  whether'  the  company  would  carry  it, 
but  I  ivould  write  it  a/td  report  it;  and  the  company  was  also  named. 
I  recollect  that  I  said  to  him  that  perhaps  the  American  of  Phila- 
delphia, having  his  other  risks,  he  being  a  patron  of  the  company, 
might  carry  it  for  him.  My  recollection  is  that  I  said  to  him  it  was 
a  kind  of  risk  not  desirable,  and  I  did  not  know  whether  the  com- 
pany would  carry  it  after  it  was  written  and  reported.  He  had  insur- 
ance in  the  same  company  at  the  time.  I  did  not  write  any  policy, 
or  make  any  entries  of  this  in  my  register.  I  didn't  report  it  to 
the  company  till  after  the  fire.  *  *  *  This  conversation  was  on 
Saturday  after  the  usual  business  hours, — after  I  had  closed  my 
office." 

This  is  all  the  evidence  given  on  either  side  in  regard  to  the  con- 
tract,  and   it  appears   to   us   to   be   conclusive   upon   the   question 


78  FORMATION    OF    THE    CONTRACT. 

whether  a  contract  to  insure  was  made.  The  plaintiff  testifies  thai 
there  was  an  agreement  to  write  the  policy  for  $500  for  six  months, 
to  take  effect  from  twelve  o'clock  noon  on  the  4th  day  of  July,  for 
a  premium  to  be  paid  by  him  of  $3.  The  agent  of  the  defendant 
testifies  to  t'.ie  same  thing,  except  he  does  not  say  when  it  was  to 
take  effect;  but  he  does  say  that  he  agreed  to  write  the  policy  for 
six  months  for  the  agreed  premium  of  $3,  but  is  silent  as  to  when 
it  was  to  take  effect;  so  that  the  only  evidence  on  that  point  is  the 
uncontradicted  evidence  of  the  plaintiff  that  it  was  to  take  effect  at 
noon  of  Iul/4,  1887.  The  proof  that  the  hay  to  be  insured  was 
destroyed  by  fire  on  the  i8th  of  July,  1S87,  is  not  (jueslioned,  nor 
is  there  any  question  made  as  to  the  value  of  the  hay  destroyed. 
Neither  is  there  any  dispute  but  that  the  plaintiff  demanded  the 
policy  after  the  fire,  and  the  defendant  refused  to  deliver  it;  nor 
that  he  notified  the  company  of  his  loss  and  demanded  payment 
before  he  commenced  this  action.  The  contention  of  the  counsel 
for  the  appellant,  that  the  evidence  of  the  agent  of  the  company 
contradicts  the  evidence  of  the  plaintiff  in  any  material  point,  is  not 
sustained  by  the  record.  He  admits  that  he  agreed  to  issue  the 
policy,  but  claims  that  he  suggested  to  the  plaintiff  that  the  com- 
pany might  be  unwilling  to  carry  the  risk  after  he  reported  it  to 
the  company.  He  never  did  report  it  to  the  company,  and  the 
company  did  not  refuse  to  carry  the  risk  before  the  loss  occurred. 

Under  this  evidence  it  is  clear  that  if  the  agent  had  issued  the 
policy  as  he  admits  he  agreed  to,  the  company  would  have  been 
bound  by  it  until  it  gave  notice  that  it  elected  to  cancel  the  same, 
and  if  no  notice  that  it  chose  to  cancel  the  same  had  been  given 
before  a  loss,  it  would  be  too  late  to  affect  the  liabdity  of  the  com- 
pany to  the  plaintiff.  All  the  evidence  on  the  subject  of  the 
contract  being  before  the  court,  and  there  being  no  material  contra- 
diction as  to  what  the  facts  were,  it  seems  to  us  that  the  learned 
circuit  judge  was  correct  in  directing  a  verdict  for  the  plaintiff 
upon  that  question.  That  the  evidence  established  a  contract  to 
insure  as  claimed  by  the  plaintift,  although  the  premium  was  not 
paid,  is  settled  by  the  decision  of  this  court  in  the  case  of  King  v. 
Hckla  F.  Ins.  Co.,  58  Wis.  508,  and  the  case  at  bar  is  distinguished 
from  the  case  of  Taylor  v.  Phxnix  Ins.  Co.,  47  Wis.  365,  exactly  as 
the  case  in  58  Wis.  is  distinguished.  This  case  and  the  case  in  58 
Wis.  are  cases  where  the  plaintiff  bases  his  action  upon  the  breach 
of  a  contract  to  insure,  and  the  case  of  Taylor  v.  Phoenix  Ins.  Co., 
was  an  action  upon  a  policy  of  insurance,  as  though  issued  and  m 
force,  although  a  policy  had  not  in  fact  been  issued. 

That  a  person  may  maintain  an  action  to  recover  damages  for  ih- 


FORM    OF   THE   CONTRACT.  79 

L).-:a.a  of  a  contract  to  insure,  is  well  established  by  the  authorities, 
aad  the  damages  in  such  a  case  is  the  sum  which  the  policy  was  to 
insure,  if  the  property  to  be  insured,  and  which  was  destroyed  by 
fire  during  the  time  of  the  life  of  the  policy  as  it  was  agreed  to  be 
issued,  was  of  the  value  to  be  insured  by  the  policy.  Upon  this 
question  there  is  no  dispute.  If  the  company  is  liable  at  all  it  is 
liable  for  $500.      *     *     * 

By  the  Court.  — The  judgment  of  the  Circuit  Court  is  affirmed. 


WIEBELER  V.  MILWAUKEE  MECHANICS'  MUTUAL 
INSURANCE  CO. 

30  Minn.  464.  —  1883. 

GiLFiLLAN,  C.  J.  —  Action  on  a  contract  to  insure.  From  the 
admissions  in  the  pleadings  and  on  the  trial,  and  from  the  evidence, 
the  referee  was  justified  in  Aiding  as  he  did  find,  that  plaintiff  held 
defendant's  policy  (about  to  expire)  insuring  his  dwelling  for  three 
years  for  the  sum  of  $250,  and  that  before  it  expired  the  agent  of 
defendant,  on  its  behalf,  agreed  orally  with  plaintiff  to  renew  it, 
increasing  the  amount  on  the  dwelling  to  $400,  and  extending  it  so 
as  to  cover  the  furniture  in  the  amount  of  $250,  and  the  barn  to  the 
amount  of  $100.  Nothing  being  said  to  the  contrary,  the  presump- 
tion would  be  that  the  renewal  was  to  be  for  the  same  length  of 
time  and  the  same  rate  of  premium  as  in  the  original  policy,  and 
the  referee  found  the  fact  accordingly.  This  makes  a  good  con- 
tract to  insure  for  the  term  of  three  years. 

Defendant  claims  that  the  contract  was  within  the  statute  of 
frauds  and  void.  There  is  included  in  the  statute  "  every  agree- 
ment that  by  its  terms  is  not  to  be  performed  within  one  year  from 
the  making  thereof."  This,  of  course,  does  not  include  an  agree- 
ment that  may,  in  accordance  with  its  terms,  be  fully  performed 
and  ended  within  the  year;  as  where  the  thing  to  be  done  depends 
on  a  contingency  that  may  happen  within  the  time.  This  is  the 
case  with  a  contract  to  insure  where  the  insurance  is  to  commence 
within  the  year. 

Judgment  affirmed." 

' '  Upon  an  oral  contract  of  insurance,  where  nothing  is  said  about  conditions, 
if  a  policy  is  to  be  issued,  the  parties  are  presumed  to  intend  that  it  shall  con- 
tain the  conditions  usually  inserted  in  policies  of  insurance  in  like  cases,  or  as 
have  been  before  used  by  the  parties.  That  a  particular  condition  is  usual 
must  bs  shown  by  the  parly  who  insists  upon  it,  who  has  the  affirmative." — 
Salisbury  v.  Ins.  Co.,  32  Minn.  458. 


8o  FORMATION   OF   THE    CONTRACT. 

HEBERT  7'.    MUTUAL  LIFE  IXS.   CO. 

12  Fed.  S07,  (CiRciiT  Cr.  D.  Ore.)  — 1S82. 

De.\dy,  I).  J. — This  suit  is  brought  to  enforce  a  contract  for  the 
delivery  of  a  life  insurance  policy  for  the  sum  of  $15,000,  and  for  a 
decree  that  the  defendant  pay  the  same  to  the  plaintiff. 

The  bill  alleges  that  the  defendant,  on  June  11,  1878,  and  since, 
was  and  has  been  a  corporation  organized  under  the  laws  of  New 
York,  and  doing  a  life  insurance  business  in  Oregon;   that  on  said 
day  Oliver  Hebert,  of  Marion  county,  Oregon,  the  husband  of  the   ■ 
plaintiff,  applied  to  the  agents  of  the  defendant  in  said  county  for 
insurance  upon  his  life  of  $20,000,  payable  to  the  plaintiff,  and  paid 
them  the  first  quarter's  premium  thereon,  to  wit,  $105.60,  which  sum 
was  by  them  forwarded  to  the  defendant  upon  the  condition  "  that 
if  the  amount  of  the  risk  should  be  reduced,  a  proportionate  share 
of  the  premium  should  be  refunded,"  and  if  the  whole  application 
should  be  rejected,  it  would  all  be  refunded;  that  subsequently  the 
defendant  rejected  $5,000  of   said   application,  and  on  August  26, 
1878,  remitted  to  said  Hebert  $26.40  of  said  payment,  and  "accepted, 
received,  and  retained  "  the  remaining  $79-2o  as  the  premium  upon 
the  first  quarter  of  such  insurance,  and  in  consideration  thereof  "did 
insure  the  life  of  said  Hebert  from  such  time  in  the  sum  of  $15,000," 
payable  upon  the  death  of  said  Hebert  to  the  plaintiff;  and  also  agreed 
"  to   issue  and   deliver    unto    said   Hebert  a  '  plain   life  insurance 
policy  '  upon  his  own  life,  according  to  the  customary  form  adopted 
and  in  use  by  the  defendant,  for  said  sum  payable  as  aforesaid," 
which  agreement  it  has  hitherto  neglected  and  refused  to  perform; 
that  about  September  8,    1878,   at  said  county,  said   Hebert  died, 
and  the  plaintiff  thereupon  demanded  of  the  defendant  said  policy 
and  the  payment  of  said  insurance,  which  was  refused;  and  that,  by 
reason  of  the  refusal  to  issue  said  policy,  the  plaintiff  is  unable  to 
"  enforce  her  rights  in  an  action  at  law,"  wherefore  she  brings  this 
suit  and   prays  the  defendant   may  be   required   to  deliver  to  her 
"a  plam  life  insurance  policy"  upon  the  life  of  said  Hebert  for  the 
sum  aforesaid,  to  take  effect  from  the  date  of  said  contract  afore- 
said, and   payable   to   the   plaintiff,  and   for   a   decree  against   the 
defendant  for  said  sum  of  $15,000,  with  interest. 

The  defendant  demurs  to  the  bill  because  (i)  the  plaintiff,  upon 
the  case  stated,  is  not  entitled  to  the  relief  prayed  for;  (2)  the  policy 
is  not  sufficiently  described;  and  (3)  the  plaintiff  has  an  adequate 
remedy  at  law. 

The  jurisdiction  of  a  court  of  equity  to  compel  the  specific  per- 
formance of  a  contract  for  insurance  is  well  established.     The  policy 


FORM    OF   THE    CONTRACT.  8l 

cannot  be  obtained  by  an  action  at  law,  although  one  might  be  main- 
tained upon  it  for  the  insurance  after  it  is  issued.  But  a  court  of  equity 
having  taken  jurisdiction  for  the  purpose  of  compelling  the  delivery 
of  the  policy,  will  retain  it  where  there  has  been  a  loss  or  death, 
for  the  purpose  of  decreeing  payment  of  the  policy,  both  to  avoid 
expense  and  because  the  latter  relief  is  a  mere  incident  of  the 
former.  Ang.  F.  &  L.  Ins.  34;  Perkins  v.  Washington  Ins.  Co.,  4 
Cow.  645;  Carpenter  \.  M.  S.  Ins.  Co.,  4  Sandf.  Ch.  408;  Brugger 
V.  S.  I.  I71S.  Co.,  5  Sawy.  304.  Nor  does  there  appear  to  be  any 
uncertainty  as  to  the  nature  of  the  contract,  or  the  form  or  effect 
of  the  policy,  as  stated  in  the  bill.  The  agreement  was  for  "  a 
plain  life  insurance  policy  "  upon  the  life  of  the  deceased  for 
$15,000,  payable  to  the  plaintiff  "  according  to  the  customary  form 
adopted  and  in  use  by  the  defendant,"  for  which  it  was  paid  and 
had  received  one  quarter's  premium. 

If  there  is  any  reason  not  appearing  on  the  face  of  the  bill  why 
the  defendant  should  not  be  compelled  to  perform  its  contract,  as 
that  it  was  procured  by  fraud  or  falsehood,  the  defendant  can  set 

it  up  as  a  defense. 

The  demurrer  is  overruled. 


b.  The  Standard  Policy. 
HICKS  V.  BRITISH  AMERICA  ASSURANCE  CO. 

162  N.  Y.  284.  —  igoo. 

Appeal  from  a  judgment  of  the  Appellate  Division  of  the  Supreme 
Court  in  the  fourth  judicial  department,  entered  February  8,  1897, 
affirming  a  judgment  in  favor  of  plaintiff  entered  upon  a  verdict, 
and  an  order  denying  a  motion  for  a  new  trial. 

Th's  action  was  brought  to  recover  on  an  alleged  oral  contract  to 
insure  a  certain  building  in  the  village  of  Penn  Yan,  entered  into 
between  George  C.  Hicks,  the  plaintiff's  assignor,  and  Melmoth 
Hobart,  the  agent  of  the  defendant. 

Parker,  Ch.  J.  We  are  agreed  that  the  verdict  of  the  jury  estab- 
lishes that  on  the  30th  day  of  December,  1893,  defendant's  agent 
Hobart  had  a  conversation  with  Colonel  Hicks,  plaintiff's  assignor, 
the  legal  effect  of  which  was  to  create  a  contract  of  present  insurance 
in  the  sum  of  $2,500.00  upon  property  of  Colonel  Hicks,  which  was 
consumed  by  fire  two  davs  later.  The  agreement  that  the  contract 
was  one  of  present  insurance  accords  with  the  allegations  of  the 
complaint,  the  theory  of  the  counsel  as  shown  by  their  method  of 

LA.W  OF  INSI'RANXE  —  6 


82  FORMATION    OF   THE   CONTRACT. 

trial  and  the  charge  of  the  court.  That  position  cannot  be  attacked 
from  any  source,  for  either  that  which  was  said  operated  to  create 
a  contract  of  present  insurance,  or  else  no  contract  was  ever  made 
binding  upon  the  defendant.  The  evidence  tended  to  show  a 
contract  to  insure,  and  nothing  else.  It  is  not  pretended  that  a  con- 
tract of  any  kind  between  these  parties  was  made  after  the  conver- 
sation of  December  30th.  The  jury  have  found  that  the  defendant's 
agent  said  to  Hicks,  after  a  general  discussion  on  the  subject  of 
insuring  the  property,  "  you  are  insured  from  noon  on  the  30th  day 
of  December,  1893,  to  noon  of  December  30th,  1894."  The  legal 
effect  of  this  answer  to  the  application  for  insurance  made  by  Col. 
Hicks  was  to  create  a  complete,  'binding  agreement  for  insurance 
for  the  period  named,  upon  which  he  was  entitled  to  recover  for 
the  damages  sustained  by  the  fire  had  he  made  performance  on  his 
part.  Ruggles  v.  American  Central  Ins.  Co.  of  St.  Louis,  114  N.  Y. 
415.  This  contract  of  insurance,  although  verbal,  embraced  within 
it  the  provisions  of  the  standard  policy  of  fire  insurance,  which  the 
legislature  in  its  wisdom  formulated  for  the  protection  of  both 
insured  and  insurer.  It  is  usual  for  the  company  to  issue  a  policy 
of  insurance  evidencing  the  contract  between  the  parties;  but  the 
policy  accomplishes  nothing  more  tlian  that,  for  when  the  contract 
is  entered  into  between  the  agent  and  the  owner,  whether  the  binder 
be  verbal  or  in  writing,  it  includes  within  it  the  standard  form  of 
policy  and  the  contract  is  a  completed  one.  Rnggles  Case,  supra; 
Lipnian  v.  N.  F.  Ins.  Co.,  \2\  N.  Y.  454;  Karelsen  v.  Sun  Fire  Office, 
122  N.  Y.  545;  C/n{ler7C'ood  V.  Greenwich  Ins.  Co.,  161  N.  Y.  413.  In 
the  three  cases  last  cited  the  binder  had  been  reduced  to  writing; 
but  there  is  no  distinction  whatever  in  principle  between  those 
cases  and  the  one  at  bar,  for  in  each  there  is  a  binding  contract  to 
insure,  and  necessarily  according  to  the  only  form  of  insurance 
contract  authorized  by  the  laws  of  this  state.  The  law  reads  into 
the  contract  the  standard  policy,  whether  it  be  referred  to  in  terms 
or  not.  In  Lipmans  Case,  supra.  Judge  Andrews,  in  speaking  of 
the  construction  to  be  put  upon  the  binding  slip  issued  in  that  case, 
said:  "  The  construction  is,  we  think,  the  same  as  though  it  had 
expressed  that  the  present  insurance  was  under  the  terms  of  the 
usual  policy  of  the  company  to  be  thereafter  delivered."  And  in 
Karelsen  s  case  the  court  said:  "  While  the  binding  slip  contained 
none  of  the  conditions  usually  found  in  insurance  policies,  the  con- 
tract evidenced  by  it  was  the  ordinary  policy  of  insurance  issued  by 
the  company.  So  that,  in  any  construction  of  the  contract,  it  must 
be  regarded  as  tho  igh  it  ha  1  expressed  that  the  present  insurance 
was  under  the  terms  of  the  usual  policy  of  the  company  to  be  there- 


FORM    OF   THE   CONTRACT.  83 

after  delivered."  So  that  all  this  plaintiff  had  to  do  in  order  to 
recover  in  this  action,  aside  from  showing  a  loss  by  fire  and  com- 
pliance on  her  part  with  the  conditions  of  the  contract,  was  to  prove 
the  making  of  the  contract.  This  was  accomplished  by  proving  the 
conversation  between  her  assignor  and  the  agent;  for  the  conver- 
sation disclosed  the  sum  for  which  the  property  was  to  be  insured, 
the  amount  of  premiums  and  the  period  of  insurance,  and  the  stat- 
ute provided  for  all  of  the  other  conditions  of  the  contract  of  insur- 
ance. Neither  party  to  it  had  the  right  to  add  to,  or  take  from,  the 
requirements  of  the  legislature  in  that  regard.  The  making  of  the 
contract  the  plaintiff  proved  to  the  satisfaction  of  the  jury,  and 
she  did  not  attempt  to  prove  anything  more.  This  the  trial  court,  as 
well  as  the  counsel,  understood,  anJ  the  case  was  tried  upon  that 
theory.  It  has  been  discovered  in  this  court,  however,  that  the 
judgment  against  the  defendant  cannot  be  sustained  if  this  action 
be  now  treated  in  accordance  with  the  theory  that  induced  its  com- 
mencement and  upon  which  it  was  tried,  namely,  that  the  plaintiff's 
assignor  made  a  valid  contract  of  insurance  with  the  defendant  by 
virtue  of  which  this  plaintiff,  as  assignee,  is  entitled  to  recover  to 
the  extent  provided  for  by  the  policy  for  the  damages  sustained  by 
her  through  the  destruction  by  fire  of  the  building  insured.  The 
error  which  calls  for  a  reversal  of  the  judgment,  if  this  be  treated 
as  an  action  on  the  contract,  lies  in  the  trial  court's  charge  to  the 
jury,  in  effect,  that,  as  matter  of  law,  it  was  not  necessary  for  the 
insured  to  present  to  the  defendant  proofs  of  loss  in  accordance 
with  the  requirements  of  the  standard  policy.  To  avoid  this  result 
it  is  pr  >posed  in  the  dissenting  opinions  not  only  to  set  at  naught  the 
ma  1 ,  di  isions  of  this  court,  holding  that  on  an  appeal  a  case  must 
be  (i.sjiose  1  of  upon  the  theory  upon  which  it  was  tried  [S/iider  v. 
Snider,  160  N.  Y.  151  Stephens  v.  Meriden  Britannia  Co.,  160  N.  Y. 
178;  People  ex  rel.  Warschaieer  \.  Da/ton,  159  N.  Y.  235;  Drunker  v. 
Manhattan  Ry.  Co.,  106  N.  Y.  157;  Baird  v.  Mayor,  etc.,  96  N.  Y. 
507),  but,  also,  to  decide  that  growing  out  of  this  contract  the 
plaintiff  had  another  cause  of  action,  the  maintenance  of  which  did 
not  require  the  service  of  proofs  of  loss.  Hence,  it  is  claimed  that, 
by  treating  the  case  as  having  been  tried  upon  that  theory,  the 
court  may  avoid  reversing  the  judgment,  for  in  such  a  case  it  would 
have  been  unnecessary  to  charge  that  the  service  of  proofs  of  loss 
was  essential  to  recovery.  This  newly  discovered  cause  of  action 
is  said  to  spring  out  of  the  promise  made  at  the  time  the  contract 
was  entered  into,  that  the  defendant  would  deliver  to  the  insured 
evidence  of  the  contract  in  the  shape  of  a  policy  of  insurance.  The 
contract  was  completed  at  the  moment  the  agent  said,  "  you  are 


84  FORMATION    OK    THK    CONIKACT. 

insured  from  noon  on  the  30th  day  of  December,  1893,  to  noon  on 
the  30th  day  of  December,  1894  '  {A'/igg/fs  v.  Amrr.  C.  Ins.  Co., 
supra),  and  it  is  agreed  by  every  member  of  this  court  that  the 
defendant  is  liable  to  the  plaintiff  on  the  contract  thus  made  in 
the  full  amount  of  the  policy,  if  the  damage  was  sustained  in  the 
manner  referred  to  in  the  policy,  and  plaintiff  performed  the  con- 
ditions imposed  upon  him  by  it.  But  it  is  said  that  he  may  recover 
either  on  the  contract,  or,  ii. stead,  if  he  elects,  on  the  ground  that 
the  defendant  failed  to  deliver  to  him  written  evidence  of  the  con- 
tract, ;'.  c,  a  policy  of  insurance. 

If  the  case  were  one  where  the  written  evidence  of  the  contract 
had  to  come  into  the  possession  of  the  plaintiff  before  recovery 
could  be  had  thereon,  then  it  is  true  that  an  action  in  equity  might 
be  brought,  praying  for  a  delivery  of  the  policy  that  the  defendant 
withheld,  and  further  demanding  that  upon  the  policy  delivered  in 
pursuance  of  the  decree  the  plaintiff  should  have  judgment  in  the 
amount  speci5ed  in  the  policy  for  her  damages  by  fire,  and  even 
then  the  plaintiff  would  have  to  abide  by  the  terms  of  the  policy, 
delivery  of  which  the  judgment  should  decree.  But  that  is  not  this 
case  at  all.  To  enable  her  to  recover  it  was  not  necessary  for  this 
plaintiff  to  have  physical  possession  of  the  policy  which  the  agent 
promised  to  give  her  assignor.  Ruggles  Case,  supra.  Her  action 
was  not  founded  upon  a  policy,  but  upon  the  contract  of  insurance 
made  upon  the  30th  day  of  December,  which,  as  both  parties  agreed, 
was  to  begin  at  noon  on  that  day,  no  matter  when  the  policy,  which 
the  parties  intended  should  furnish  evidence  of  the  contract,  should 
be  delivered.  The  action  was  brought,  tried  and  decided  upon  that 
theory,  and  no  one  disputes  that  the  judgment  could  in  this  court 
stand  upon  that  theory  had  the  trial  court  charged  the  jury  cor- 
rectly in  relation  to  the  necessity  of  serving  proofs  of  loss.  It  is 
apparent,  therefore,  that  the  plaintiff  sustained  no  damage  by  reason 
of  the  defendant's  failure  to  furnish  her  assignor  with  written 
evidence  of  the  contract.  Had  the  promise  been  kept,  the  plaintiff 
might  not  have  been  obliged  to  call  her  assignor  to  prove  the  con- 
tract, thus  subjecting  him,  as  it  turned  out,  to  be  confronted  with 
impeaching  testimony;  but  neither  the  plaintiff  nor  her  assignor 
was  otherwise  damaged,  for  he  found  no  difficulty  in  proving  a  con- 
tract to  the  satisfaction  of  the  jury.  The  possession  of  the  prom.ised 
policy,  therefore,  would  have  been  a  convenience  possibly,  but 
nothing  more. 

Plainly,  therefore,  it  is  not  true  that  the  plaintiff  suffered  damage 
in  the  amount  of  the  contract  of  insurance  by  reason  of  the  failure 
of  the  defendant  to  deliver  a  policy  reciting  the  terms  of  the  con- 


FORM    OF   THE   CONTRACT.  8$ 

tract  entered  into,  and  hence  the  judgment  cannot  be  affirmed  on 
the  ground  that  the  plaintiff  sustained  damages  in  the  sum  of 
$2,500.00,  because  the  defendant  omitted  to  deliver  a  policy.  Nor 
do  I  think  that  a  sound  public  policy  would  sanction  the  creation  of 
such  a  precedent  even  if  a  legal  principle  could  be  found  upon  which 
to  rest  it. 

The  Legislature  of  the  State  of  New  York  has  prescribed  a  stand- 
ard form  of  policy  for  the  protection  of  both  instrrer  and  insured. 
It  contains  provisions  specially  protecting  the  insured  from  harsh 
methods  by  insurance  companies.  On  the  other  hand,  it  provides 
that  which  experience  has  shown  to  be  necessary  in  order  to  protect 
insurance  companies  from  being  victimized  through  fraud,  and 
among  the  conditions  which  the  Legislature  in  its  wisdom  has  caused 
to  be  incorporated  into  the  standard  policy  is  one  making  it  neces- 
sary that  the  insurer  shall  have  immediate  notice  of  the  facts  and 
circumstances  of  the  lire;  another  that  within  sixty  days  the  owner 
shall  present  proofs  of  loss,  duly  verified,  in  which  shall  be  stated 
the  circumstances  of  the  fire  and  the  value  of  the  property  destroyed 
and  various  other  things  which  it  is  deemed  important  that  insur- 
ance companies  should  know  before  being  called  upon  to  adjust  a 
loss;  still  another  provides  that  no  local  agent  shall  have  the  power 
to  waive  any  of  these  written  conditions,  except  by  a  writing.  It 
is  unnecessary  to  present  the  reasons  which  induced  the  Legislature 
to  require  these  conditions  precedent  to  a  recovery  upon  a  policy  of 
insurance;  it  is  sufficient  for  our  purpose  that  the  Legislature 
declared  that  it  should  be  so,  and  we  should  see  to  it  that  the  gen- 
eral trend  of  our  decisions  is  towards  the  enforcement  of  the  legis- 
lative command  instead  of  its  nullification.  This  plaintiff  had  the 
right,  as  it  is  conceded  on  all  hands,  to  recover  on  the  contract  of 
insurance  which  her  assignor  made  with  the  defendant's  agent, 
whether  a  policy  was  subsequently  delivered  to  him  or  not;  but  as 
the  standard  policy  was  necessarily  a  part  of  the  contract,  he  should 
be  required  to  comply  with  the  conditions  of  that  policy  and  give 
notice  of  the  facts  and  circumstances  of  the  fire  and  present  proofs 
of  loss  duly  verified.  The  view  taken  by  some  of  my  brethren,  how- 
ever, is  that  it  was  unnecessary  to  give  notice  of  the  fire  and  present 
proofs  of  loss  within  sixty  days,  or  at  any  other  time,  because,  it  is 
said,  such  an  action  need  not  be  treated  as  on  a  contract  of  insur- 
ance, but  on  a  contract  to  give  a  policy,  which  has  not  been  carried 
out,  and,  therefore,  prior  to  beginning  suit,  which  may  be  done  at 
any  time  within  six  years  instead  of  one  year,  as  provided  in  the 
standard  policy,  the  insured  has  nothing  whatever  to  do  when  he 
sustains  a  loss  by  fire  but  lie  by  until,  as  in  this  case,  several  months 


86  FORMATION    OF   THE   CONTRACT. 

have  passed,  or,  in  some  other  case,  until  years  have  gone  by,  with- 
out giving  the  company  notice  of  the  fire  or  any  proofs  of  loss 
whatever;  he  may  then  bring  a  suit  claiming  that  two  clays,  or  less 
or  more,  before  the  fire,  the  defendant's  local  agent,  without  receiv- 
ing anv  pr^'miu.ii,  agreed  to,  but  did  not,  issue  a  policy,  for  which 
defendant  is  liable  to  plaintiff  in  the  amount  of  the  sum  for  which 
it  was  agreed  that  the  policy  should  issue.  If  such  a  procedure 
should  be  sanctioned  by  this  court,  then  might  an  insurance  com- 
pany be  mulcted  in  damages  without  having  had  an  opportunity  to 
investigate  promptly  the  origin  of  the  fire  and  the  value  of  the  thing 
destroyed,  and  thus  would  the  door  be  opened  wide  for  the  perpe- 
tration of  fraud. 

It  IS  said  that  if  the  foregoing  argument  seems  not  to  be  defective 
upon  its  mere  reading,  it  is  nevertheless  so  because  it  leaves  out  of 
consideration  the  decisions  of  this  court  in  Ellis  v.  Albany  City  Fire 
Insurance  Co.,  50  N.  Y.  402;  Angellx.  Hartford  Fire  Insurance  Co., 
59  N.  Y.  171;  Van  Loan  v.  Fanners'  Mutual  Fire  Insurance  Assn., 
90  N.  Y.  280.  But  the  situation  which  those  cases  were  designed 
to  meet  no  longer  exists.  During  the  period  of  time  in  which  they 
and  others  were  decided,  and  down  to  the  year  1886,  each  insurance 
company  was  at  liberty  to  insert  such  provisions  in  the  policy  of 
insurance  issued  by  it  as  it  deemed  best.  The  result  was  that  there 
was  no  uniformity  in  policies  of  insurance,  and  when  loss  by  fire 
occurred,  prior  to  a  delivery  of  the  policy,  it  became  necessary  for 
the  assured  to  secure  possession  of  the  policy,  either  by  its  volun- 
tary delivery  to  him  by  the  officers  of  the  company,  or  in  pursuance 
of  a  decree  in  a  suit  in  equity  for  specific  performance;  thereon  he 
could  found  a  judgment  for  the  damages  sustained  by  the  fire,  or 
he  was  allowed  to  recover  the  damages  sustained  for  a  breach  of 
the  contract  which  was  treated  as  a  contract  for  the  delivery  of  a 
policy.  The  last  one  of  the  cases  cited  was  decided  in  1882;  four 
years  later  the  Legislature,  by  chapter  488  of  the  Laws  of  1886, 
enacted  and  provided  for  a  uniform  policy  of  fire  insurance,  to  be 
made  and  issued  in  this  State,  by  all  insurance  companies  taking 
fire  risks  on  property  within  this  State,  to  be  known  and 
designated  as  the  "  Standard  Fire  Insurance  Policy  of  the  State 
of  New  York."'  Upon  the  passage  of  this  important  legislation^ 
the     policy     of    insurance     was     no    longer    of    special    moment 


'  The  New  York  Penal  Code,  i;  577d,  makes  it  a  misdem  ^in  ir  for  '  any  fire 
insurance  corporation  or  any  officer  or  agent  thereof"  to  i>  u  anv  fire  policy 
except  the  "  Standard  fire  insurance  policy  of  the  State  ot  New  York,"  viola- 
tion of  the  provision  being  punishable  by  a  fine. 


FORM   OF   THE   CONTRACT.  8/ 

except  as  evidence  that  a  contract  to  insure  had  been  made;  for  it 
was  no  longer  competent  for  the  parties  to  incorporate  into  the 
policy  any  provisions  whatever,  outside  of  those  embraced  >vithin 
the  terms  of  the  standard  policy,  and  thereafter  the  contract  to 
insure  was  by  common  consent  of  the  profession  and  the  courts 
scientifically  treated  as  a  contract  of  insurance,  and  not,  as  formerly, 
a  contract  to  issue  a  policy,  as  an  examination  of  the  authorities  in 
this  court  from  the  Huggles  case  down  will  show. 

[Here  follows  a  discussion  as  to  whether  the  proof s  of  loss  were  waived.\ 

It  is  plain,  therefore,  that  the  plamtiff  is  without  a  basis  for  a 
recovery  upon  this  cause  of  action,  if  a  new  trial  be  granted,  because 
neither  she  nor  her  father,  the  assignor,  have  presented  to  the 
defendant  any  proofs  of  loss,  nor  was  service  of  proofs  of  loss  waived 
by  the  defendant;  and  while  such  a  result  may  or  may  not  be  in 
the  interest  of  justice,  in  this  particular  case  there  can  be  no  doubt 
that  the  measure  of  injustice  done,  if  any,  will  be  far  less  than 
would  necessarily  ensue  from  a  decision  putting  a  premium  upon 
insurance  obtained  without  a  policy,  by  making  it  possible  to 
recover  for  the  damages  sustained  through  a  fire,  by  an  action  com- 
menced at  any  time  before  the  six  years'  Statute  of  Limitations 
shall  have  run,  and  that  too  without  giving  the  company  notice  of 
the  fire  or  serving  it  with  proofs  of  the  loss,  thereby  preventing  it 
from  being  able  to  mquire  about  the  facts  and  circumstances  attend- 
ing the  fire  until  months  or  years  after  the  happening  of  it.  This 
would  in  many  cases  effectually  prevent  the  company  from  acquir- 
ing any  information  whatever. 

It  follows,  if  the  views  expressed  be  sound,  that  the  action  is  upon 
a  contract  of  insurance  and  not  one  for  damages  resulting  from  a 
failure  to  deliver  a  policy,  and,  hence,  that  proofs  of  loss  were 
necessary  in  the  absence  of  a  waiver  thereof  by  the  defendant,  of 
which  there  is  no  proof,  and  the  failure  to  so  charge  was  error, 
calling  for  a  reversal  of  the  judgment. 

The  judgment  should  be  reversed. 

Landon,  J.  (dissenting).  *  *  *  The  complaint  may  be  con- 
strued as  seeking  either  a  recovery  of  damages  for  the  breach  of  a 
contract  to  issue  a  policy  of  insurance,  or  to  enforce  its  delivery 
and  to  recover  thereon  as  if  actually  delivered.     *     *     * 

If  the  action  were  solely  to  enforce  the  delivery  of  the  policy  and 
to  recover  thereon  as  if  actually  delivered,  then  service  of  proofs 
cf  loss  would  be  necessary,  since  in  such  case  the  rights  of  the 
insured  would  depend  upon  his  performance  of  the  conditions 
expressed  in  the  policy  as  precedent  to  his  right  of  recovery. 
DeGrove  v.  Metrop.  Ins.  Co.,  6i  N.  Y.  594.     The  same  would  be  true 


88  FORMATION    OF   THE   CONTRACT. 

if  the  action  were  to  recover  upon  an  agreement  for  temporary 
insurance  intermediate  the  application  for  it,  and  the  decision  of 
the  insurance  company,  whether  it  will  issue  a  policy,  as  in  the 
cases  of  "  binding  slips."  Lipman  v.  Niagara  Fire  Ins.  Co.,  121  N. 
V.  454;  Karelsen  v.  Sun  Fire  Office,  122  N.  Y.  545.  In  the  two  cases 
last  cited  the  insurance  company  did  not  repudiate  the  binding  slip, 
but  claimed  to  have  canceled  the  contract  according  to  its  terms. 
Recovery  was  sought  m  each  case  under  the  contract,  and  not 
because  the  agreement  to  make  it  was  repudiated  In  the  case  of 
a  binding  slip  the  insured  has  his  written  contract;  and  in  the  case 
of  an  oral  contract  he  must  show  his  right  to  one.  In  the  one  case 
the  contract  speaks  for  itself,  and  the  action  is  upon  the  contract, 
which  for  the  time  being  is  the  policy.  In  the  other  case  the  action 
may  be  upon  the  oral  contract,  but  when  the  making  of  the  con- 
tract is  denied  and  peformance  by  the  company,  therefore,  refused, 
the  action  may  be  for  damages  for  the  breach  of  the  contract  to 
deliver  the  policy  as  of  the  date  orally  agreed  upon.  The  right  to 
the  policy  is  not  affected  by  the  fire.  Ins.  Co.  v.  Co/i,  20  Wall.  560; 
Lightbody  v.  North  Am.  Ins.  Co.,  23  Wend.  18. 

We  may  regard  this  action  as  one  for  the  recovery  of  damages 
consequent  upon  the  breach  by  the  defendant  of  its  contract  to 
issue  and  deliver  the  policy,  which,  if  delivered,  would  have  enabled 
the  plaintiff,  by  complying  with  its  conditions,  to  secure  indemnity 
for  his  loss.  If  the  defendant  repudiated  the  contract  to  issue  the 
policy,  it  repudiated  its  conditions,  and,  therefore,  cannot,  without 
showing  that  it  retracted  its  repudiation,  insist  upon  the  subse- 
quent performance  by  the  insured  of  any  of  them  as  a  condition 
precedent  to  his  recovery  of  the  damages  accruing  to  him  then  or 
thereafter  by  the  completed  breach  itself.  The  defendant  did  not 
retract  the  repudiation  of  the  contract,  but  by  its  answer  repeated 
and  confirmed  it.  Shaw  v.  Republic  Life  Ins.  Co.,  69  N.  Y.  286; 
Knickerbocker  Life  Ins.  Co.  v.  Pendleton,  112  U.  S.  696;  Meyer  v. 
Knickerbocker  Life  Ins.  Co.,  73  N.  Y.  516;  Robinson  v.  Frank,  107  N. 
Y.  655;  Tayloe  v.  Merchants'  Fire  Ins.  Co.,  9  How.  (U.  S.)  390; 
Post  V.  ^'F.tna  Ins.  Co.,  43  Barb.  351. 

It  would  be  a  useless  act  for  the  plaintiff  to  serve  proofs  of  loss 
in  order  to  charge  the  defendant  with  liability  under  a  contract 
which  it  repudiated  altogether,  and  to  hold  otherwise  would  be  to 
absolve  the  offender  and  punish  its  victim.  As  the  plaintiff  did  not 
commence  this  action  until  after  seven  months  after  the  fire,  no 
question  arises  whether  the  action  for  full  damages  could  accrue 
upon  the  breach  earlier  than  under  the  contract. 

If  we  treat  t're  c^se  as  if  the  policy  had  been  issued,  it  was  not 


FORM   OF   THE    CONTRACT.  89 

within  Hobart's  power  thereafter  to  waive  proofs  of  loss,  because 
his  power  was  limited  to  the  making  of  the  contract  and  dehvery 
of  the  policy,  and  did  not  extend  to  a  subsequent  waiver  of  the  con- 
ditions which  the  policy  imposed  upon  Hicks.  But  as  his  power 
was  complete  over  the  making  of  the  contract  and  delivery  of  the 
policy,  it  embraced  as  its  necessary  incident  power  to  repudiate  the 
oral  contract  and  thereupon  to  refuse  delivery  of  the  policy,  and  hence 
his  repudiation  and  refusal,  if  made,  were  the  acts  of  the  defendant. 
In  Ellis  V.  Albany  Ins.  Co.  {supra)  the  court  not  only  so  held,  but 
also  considered  the  suggestion,  renewed  in  this  case,  that  such  a 
rule  would  enable  the  agent  to  perpetrate  a  fraud  upon  the  company 
by  making  preliminary  contracts,  when  the  company  only  intended 
to  be  bound  by  writing,  and  answered  it  by  saying  that  that  was  no 
reason  for  depriving  third  persons  of  the  benefit  of  contracts  entered 
into  with  the  agent.  We  cannot  review  the  finding  that  the  defend- 
ant, through  Hobart,  did  repudiate  the  contract  and  refuse  to  issue 
the  policy. 

The  charge  of  the  court  placed  the  waiver  of  the  proofs  of  loss 
and  the  lack  of  necessity  to  furnish  them  upon  the  same  finding  of 
facts  by  the  jury.  The  court  was  wrong  as  to  the  waiver  of  the 
proofs,  if  plaintiff  had  no  right  of  recovery  except  under  the  policy; 
but  upon  the  same  facts  the  court  was  right  in  saying,  if  the  agent 
claimed  that  no  contract  was  made,  they  were  not  necessary. 

As  the  jury  found  the  facts  which  made  the  service  of  proofs  of 
loss  unnecessary,  what  was  said  as  to  waiver  was  unimportant,  and 
not  reversible  error. 

It  is  said  that  the  plaintiff  sustained  no  damages  by  the  defend- 
ant's breach  of  its  contract  to  deliver  the  policy,  because  she  had 
her  remedy  upon  the  orai  contract  to  insure.  It  could  be  said  with 
equal  force  that  she  had  no  remedy  upon  the  oral  contract  to  insure 
because  she  had  her  remedy  for  damages.  Obviously  she  could 
stand  upon  all  the  causes  of  action  which  the  facts  pleaded  per- 
mitted, and  finally  avail  herself  of  the  one  proved.  The  form  of 
the  policy  is  fixed  by  statute,  but  that  simply  affects  ease  of  proof, 
and  not  the  remedy  upon  the  proofs.     *     *     * 

Werner,  J.  (dissenting.)  —  It  seems  to  me  that  we  cannot  hold 
that  an  action  may  not  be  brought  for  the  breach  of  an  agreement 
to  insure  without  distinctly  overruling  Ellis  v.  Albajiy  City  Fire 
Insurance  Company,  50  N.  Y.  402;  Angell  v.  Hartford  Fire  Ins.  Co., 
59  N.  Y.  171;  Van  Loan  v.  Farmers'  M.  F.  Ins.  Assn.,  90  N.  Y.  281, 
and  Post  v.  ^Etna  Ins.  Co.,  43  Barb.  351.  I  do  not  think  that  the 
evidence  wholly  justifies  the  statement  that  the  action  was  clearly 
tried   upon  the  theory  of  an  executed  contract  of  insurance.     It  is 


90  FORMATION   OF   THE   CONTRACT. 

true  that  the  complaint,  and  the  evidence  given  in  support  thereof, 
were  undoubtedly  appropriate  to  such  an  action;  but  it  does  not 
follow  that  they  were,  therefore,  not  appropriate  to  an  action  for 
damages  arising  out  of  the  alleged  breach  of  the  contract  to  insure. 
It  frequently  happens  that  the  same  pleadings  and  proofs  will  sup- 
port different  causes  of  actions  which  are  governed  by  inconsistent 
legal  principles.  I  am  prepared  to  agree  with  Chief  Judge  Parker 
in  holding  that  under  the  law  providing  for  the  standard  policy  it  is 
the  logical  rule  to  decide  that  every  contract  for  insurance  made 
with  an  authorized  agent,  whether  the  same  be  oral  or  written, 
constitutes  a  valid  contract  of  insurance  which  requires  nothing  to 
complete  it  except  the  written  evidence  of  its  terms  and  conditions. 
The  cases  of  Lipman  v.  JV.  F.  Ins.  Co..,  121  N.  Y.  454;  Karelsen  v. 
Sun  Fire  Office,  122  N.  Y.  545,  and  Undertoood  \ .  Greenwich  Ins.  Co.., 
161  N.  Y.  413,  cited  by  him.  clearly  demonstrate  that  this  is  the 
more  receiit  view  of  our  court.  But  that  is  very  different  from 
deciding  that,  when  a  plaintiff  claims  that  a  contract  for  insurance 
has  been  made  and  broken,  and  a  defendant  insurance  company 
denies  that  any  such  contract  was  ever  made,  a  plaintiff  can  recover 
only  upon  the  theory  of  an  executed  and  completed  contract.  Sucli 
a  rule  would  result  in  exempting  insurance  companies  from  the 
application  of  one  of  the  most  familiar  principles  of  the  law  of  con- 
tracts. It  is  a  rule  of  universal  application  that  when  a  party  to  a 
contract  refuses  to  execute  it,  the  other  party  thereto  may  treat  it 
as  rescinded  and  sue  for  the  breach.  Beach  on  Modern  Law  of 
Contracts,  §  788.  In  such  a  case  as  this  the  difference  in  the 
character  of  the  action  is  one  of  form  rather  than  of  substance, 
because  the  recovery  in  either  case  would  be  the  same.  But  let  us 
assume  that  it  is  now  the  established  law  that  a  party  claiming  under 
an  oral  or  a  written  memorandum  for  insurance  must  recover,  if  at 
all,  upon  the  terms  and  conditions  of  a  completed  policy  which  are 
to  be  read  into  his  tentative  contract.  It  is  conceded  that  Hobart 
was  the  duly  authorized  agent  of  the  defendant  for  the  purpose  of 
issuing  policies  of  insurance.  He  was  provided  with  blanks  for  that 
purpose,  which  needed  only  to  be  countersigned  by  him  to  make 
them  executed  and  binding  contracts.  The  right  to  issue  policies 
included  the  right  to  refuse  to  issue  them.  Hobart's  agreement  to 
issue  a  policy  was  the  act  of  the  company.  Whose  act  was  Hobart's 
refusal  to  issue  a  policy  after  he  had  bound  the  company  by  his 
agreement  to  issue  one? 

To  my  mind  there  is  no  escape  from  the  conclusion  that  if  he 
acted  for  the  company  in  making  the  agreement,  he  acted  in  the 
same  capacity  in  breaking  it.     There  was  a  dispute  of  testimony  as 


FORM    OF   THE   CONTRACT.  9I 

to  whether  he  ever  made  such  an  agreement  with  plaintiff's  assignor. 
Tais  presented  a  question  of  fact  which  the  jury  have  settled  in 
f-ivor  of  the  plaintiff.  If,  then,  we  treat  this  as  an  action  upon  the 
policy,  and  hold  the  defendant  responsible  for  the  acts  of  Hobart, 
what  is  the  effect  of  such  acts.  The  answer  seems  obvious.  If  the 
defendant,  through  its  proper  officers,  had  issued  a  policy  of  insur- 
ance, and  after  a  loss  under  the  same,  had  denied  its  liability  on 
the  ground  that  it  never  made  any  such  contract,  it  would  be  a  dis- 
tinct waiver  of  the  right  to  demand  proofs  of  loss.  S/unc>  v.  Repub- 
lic Life  Ins.  Co..,  69  N.  Y.  286;  Stokes  v.  Macka\\  147  N.  Y.  223; 
People  \.  Empire  Miit.  Life  Ins.  Co.,  92  N.  Y.  105;  May  on  Insur- 
ance, §  469;  Porter  on  Insurance  (American  Notes  by  Darrach, 
1889),  star  page  194;  Richards  on  Insurance,  §  81;  Grattan  v. 
Met.  Life  Ins.  Co.,  80  N.  Y.  281;  Payn  v.  Mutual  Relief  Society,  6 
N.  Y.  S.  R.  365;  Knickerbocker  Life  Ins.  Co.  v.  Pendleton,  112  U.  S. 
696;  Brink  v.  Hanover  Fire  Ins.  Co.,  80  N.  X.   113. 

Is  the  result  any  different  because  these  things  were  done  by  an 
agent.  As  we  have  seen,  this  agent  had  authority  to  issue,  and, 
therefore,  to  refuse  to  issue  policies.  His  agreement  to  issue  a 
policy  was  the  act  of  his  principal.  His  refusal  to  i.ssue  a  policy 
after  he  had  agreed  to  do  so  falls  within  the  same  category.  Under 
these  circumstances  the  refusal  of  the  agent  has  the  same  effect  as 
though  it  had  actually  been  made  by  the  principal.  Indeed,  for 
the  purposes  of  the  particular  act,  he  was  the  principal.  Goodivin 
V.  Mass.  Mut.  Life  Ins.  Co.,  73  N.  Y.  490,   491. 

But  it  is  suggested  that  the  policy  provides  that  no  agent  shall 
have  power  to  waive  any  of  the  conditions  thereof.  This  is  undoubt- 
edly true  after  a  policy  has  been  issued,  and  the  limited  powers  of 
the  agent  are  spent.  But  in  the  case  before  us,  the  acts  of  the 
agent  were  within  the  scope  of  his  authority,  for  until  the  policy  was 
actually  issued  he  was  the  alter  ego  of  the  defendant.  At  every 
instant,  within  the  period  covered  by  the  negotiations  between 
Hobart  and  the  plaintiff's  assignor,  the  former  was  acting  within 
the  scope  of  his  authority.  As  the  case  stands,  it  is  just  as  though 
the  defendant  itself  had  refused  to  issue  a  policy  after  it  had  agreed 
to  do  so.  Under  these  circumstances  the  plaintiff  and  her  assignor 
were  not  required  to  present  proofs  of  loss,  because  they  had  been 
absolved  from  this  duty  by  the  acts  of  the  defendant. 

If  these  views  are  adopted,  it  follows  that  the  charge  of  the  trial 
ourt  was  substantially  correct,  wherein  it  stated  that  it  was  not 
necessary  for  the  plaintiff  to  serve  proofs  of  loss;  and  by  the  same 
rule  it  would  seem  to  follow  that  the  instructions  relating  to  the 
waiver  by  Hobart  were  harmless  because  they  were  immaterial. 


92  FORMATION    OF   THE   CONTRACT. 

Gray,  O'Brikn  and  Cullen,  JJ.,  concur  with  Parker,  Ch.  J,,  for 
reversal.  Landon  and  Werner,  JJ.,  read  for  affirmance  and 
Haight,  J.,  concurs  with  Landon,  J. 

Judgment  reversed,  etc. 


IV.  Consideration. 

Gray,  J.,  in  PHCENIX  LIFE  INSURANCE  CO.  v.   RADDIN. 

120  U.  S.  1S3,  196.  —  1SS7. 

The  only  objection  remaining  to  be  considered  is  that  of  variance 
between  the  declaration  and  the  evidence,  which  is  thus  stated  in 
the  bill  of  exceptions:  "  After  the  plaintiff  had  rested,  the  defend- 
ant asked  the  coart  to  rule  that  there  was  a  variance  betw^een  the 
declaration  and  the  proof,  inasmuch  as  the  declaration  stated  the 
consideration  of  the  contract  to  be  the  payment  of  the  sum  of 
$152.10,  and  of  an  annual  premium  of  $304.20,  while  the  policy 
showed  the  consideration  to  be  the  representations  made  in  the 
application  as  well  as  payment  of  the  aforesaid  sums  of  money,  and 
that  an  amendment  to  the  declaration  was  necessary;  but  this  the 
court  declined  to  rule,  to  which  the  defendant  excepted." 

But  the  "consideration,"  in  the  legal  sense  of  the  word,  of  a 
contract,  is  the  quid  pro  quo,  that  which  the  party  to  whom  a 
promise  is  made  does  or  agrees  to  do  in  exchange  for  the  promise. 
In  a  contract  of  insurance,  the  promise  of  the  insurer  is  to  pay  a 
certain  amount  of  money  upon  certain  conditions;  and  the  con- 
sideration on  the  part  of  the  assured  is  his  payment  of  the  whole 
premium  at  the  inception  of  the  contract,  or  his  payment  of  part 
then,  and  his  agreement  to  pay  the  rest  at  certain  periods  while  it 
continues  in  force.  In  the  present  case,  at  least,  the  application  is 
collateral  to  the  contract,  and  contains  no  promise  or  agreement  of 
the  assured.  The  statements  in  the  application  are  only  represen- 
tations upon  which  the  promise  of  the  insurer  is  based,  and  condi- 
tions limiting  the  obligation  which  he  assumes.  If  they  are  false, 
there  is  a  misrepresentation,  or  a  breach  of  condition,  which  pre- 
vents the  obligation  of  the  insurer  from  ever  attaching,  or  brings  it 
to  an  end;  but  there  is  no  breach  of  any  contract  or  promise  on  the 
part  of  the  assured,  for  he  has  made  none.  In  short,  the  state- 
ments in  this  application  limit  the  liability  of  the  insurer,  but  they 
create  no  liability  on  the  part  of  the  assured.  The  expression  at 
the  beginning  of  the  policy,  that  the  insurance  is  made  "  in  con- 
sideration of  the   representations  made   in  the  application  for  this 


CONSUMMATION   OF   THE   CONTRACT.  93 

policy,"  and  of  certain  sunas  paid  and  to  be  paid  for  premiums, 
does  not  make  tiiose  representations  part  of  tlie  consideration,  in 
the  technical  sense,  or  render  it  necessary  or  proper  to  plead  them 
as  such.' 


V.  Consummation  of  the  Contract. 

MACHINE  CO.  V.  INSURANCE  CO. 
50  Oh.  St.  549.  —  1893. 

The  action  below  was  brought  by  the  Newark  Machine  Company 
against  the  Kenton  Insurance  Company  of  Kentucky  to  recover  the 
amount  of  a  policy  of  fire  insurance.  The  issue  tried  was  whether 
the  contract  of  insurance  had  been  consummated  by  the  parties. 
The  plaintiff  prevailed  in  the  Court  of  Common  Pleas;  but  the  judg- 
ment there  obtained  was  reversed  by  the  Circuit  Court,  and  error  is 
prosecuted  here  to  the  judgment  of  that  court. 

Williams,  J.  The  facts  of  the  case,  as  shown  by  the  record,  and 
about  which  there  is  no  controversy,  are  substantially  as  follows: 
On  the  30th  day  of  June,  1884,  the  plaintiff,  a  corporation,  owned 
and  was  operating  a  large  manufacturing  plant  in  the  city  of  New- 
ark, and  had  been  the  owner  and  operator  of  it  for  several  years. 
The  defendant,  a  fire  insurance  company,  then  had  an  established 

'  Some  courts  hold  that  the  contract  of  insurance  is  a  unilateral  one,  the  con- 
sideration of  which  is  the  payment  of  the  first  premium ;  the  contract  being  subject 
to  the  condition  subsequent  that  unless  the  subsequent  premiums  are  paid  the 
contract  shall  be  of  no  effect.  "  The  contract  of  life  insurance  has  its  inception 
in  the  issue  of  the  policy,  and  is  a  complete  and  entire  contract  for  the  life  of 
the  assured,  continuing  during  life,  and  payable  at  death,  when  no  earlier 
definite  period  is  fixed,  but  subject  to  be  discontinued  by  non-payment  of  the 
premiums  as  agreed,  such  payments  being  conditions  subsequent.  The  annual 
premium  is  not  paid  in  consideration  of  insurance  for  a  single  year,  and  its 
payment  is  not  a  condition  precedent  to  renewal.  Each  premium  constitutes  a 
part  of  the  consideration  of  the  contract,  as  one  and  entire,  and  the  amount  is 
fixed  and  regulated  by  the  prospecti^^e  duration  of  the  life  of  the  assured, 
which  enters  as  an  element  into  the  contract." — Feam  v.  Ward,  80  Ala.  555, 
563.  Contra:  "  The  applicant,  upon  the  payment  of  the  first  premium,  effects 
an  insurance  upon  his  life  for  one  year,  and  purchases  a  right  to  continue  that 
insurance  from  year  to  year,  during  life,  at  the  same  rate.  Whether  he  will 
continue  it  or  not  is  optional  with  him.  The  premium  for  the  first  year  pays 
for  the  risk  during  that  year,  and  for  the  right  to  subsequent  insurance.  The 
rale  of  insurance  for  a  single  year  is  less  than  the  annual  premiums  on  a  life 
policy.  The  difference,  continued,  as  it  is  supposed  it  will  be,  from  year  to 
year  through  life,  may  be  regarded  as  the  consideration  for  the  right  to  con- 
tinue the  insurance." —  IVorthingto.i  v.  Ins.  Co.,  41  Conn.  372,  399. 

See  also  Premiums, /mV,   p.  135. 


94  FORMATION    OF   THE   CONTRACT. 

agency  in  Newark,  in  the  charge  of  H.  U.  Murphy,  who  was  also 
the  agent  of  a  number  of  other  fire  companies,  among  them 
the  Norwich  Union  Company.  He  was  a  regularly  commis- 
sioned agent  of  these  companies,  and  was  provided  by  them  with 
blank  applications,  and  policies  duly  signed  by  the  proper  officers, 
to  be  filled  up  and  countersigned  by  him  as  agent,  and  delivered  in 
the  course  of  the  business  of  his  agency,  and  also  with  registers  in 
which  to  keep  a  record  of  the  business,  and  blanks  for  making 
reports  of  the  same  to  the  respective  companies.  He  had,  during 
the  existence  of  his  agency,  issued  a  large  number  of  policies  of 
different  companies  represented  by  him  to  the  plaintiff,  insuring  its 
buildings,  machinery,  and  stock  against  loss  or  damage  by  fire,  one 
of  which  was  a  policy  on  the  stock  for  $5,000  in  the  Norwich  Union, 
issued  a  short  time  prior  to  June  30,  1884.  There  was  an  under- 
standing between  the  managing  officer  of  the  plaintiff  and  Murphy 
that  the  latter  should  keep  the  insurance  of  the  plaintiff  up  to  a 
certain  amount,  either  by  renewals  or  new  policies  in  good  com- 
panies represented  by  him;  and  his  course  of  dealing  with  the  plain- 
tiff under  that  understanding  was  to  charge  up  the  amount  of  the 
premiums  to  the  plaintiff  when  policies  were  issued  or  renewed,  and 
have  periodical  settlements,  usually  once  a  month,  when  the  premi- 
ums would  be  paid.  The  Norwich  Union,  not  desiring  to  carry  so 
large  an  insurance  on  the  plaintiff's  stock,  a  few  days  prior  to  the 
30th  of  June,  1884,  directed  Murphy  to  reduce  its  risk  to  $2,500. 
He  thereupon,  on  the  30th  day  of  June,  1884,  filled  up  for  that 
amount  one  of  the  blank  policies  which  that  company  had  furnished 
him,  duly  signed  by  its  proper  officers,  and  countersigned  it  as 
agent,  and  at  the  same  time  filled  up,  for  the  same  amount,  one  of 
the  blank  forms  of  policy  with  which  the  defendant  company  had 
supplied  him,  duly  signed  by  its  officers,  and  countersigned  the 
same  as  its  agent,  ready  for  delivery.  He  made  the  customary 
entries  of  the  issuing  of  the  policies  in  the  registers  of  the  respective 
companies,  and  in  that  of  the  Norwich  Union  an  entry  also  of  the 
cancellation  of  the  $5,000  policy,  in  place  of  which  the  two  policies 
he  had  so  filled  up  were  intended  to  be  substituted  On  the  2d  day 
of  July,  1884,  he  forwarded  to  the  defendant  at  its  home  office  in 
Covington,  Ky.,  what  is  called  a  "  daily  report,"  in  which  he  gave 
the  number  of  the  policy  he  had  written  for  the  plaintiff,  its  date, 
amount,  and  duration,  the  rate  and  amount  of  the  premium,  a 
description  of  the  property  insured,  and  other  particulars  of  the  risk. 
This  report  was  received  at  the  home  office  July  3,  1884.  The 
premium  on  the  $5,000  policy  had  been  fully  paid  by  the  plaintiff,  and 
when  the  entry  of  its  cancellation  was  made  the  policy  had  run  but 


CONSUMMATION    OF   THE    CONTRACT.  g$ 

::  short  time.  The  unearned  or  returned  premium  was  carried  to 
ttie  credit  ofthe  plaintiff  on  the  books  of  the  agent,  and  the  amount 
of  the  premiums  due  on  the  two  new  policies  was  charged  to  the 
plaintiff  by  the  agent  in  accordance  with  his  previous  custom.  At 
the  next  regular  settlement  between  the  plaintiff  and  the  agent, 
which  was  made  July  7,  1S84,  there  was  due  him  from  the  plaintiff, 
on  account  of  premiums  on  various  policies,  the  sum  of  $438.55, 
which  amount  included  the  balance  due  on  the  policy  of  the  defend- 
ant. The  amount  due  on  the  account  was  then  paid  by  the  plaintiff. 
When  the  policy  of  the  defendant  was  written,  and  the  cancellation 
entered  of  the  Norwich  Union  policy,  the  latter  was  m  the  posses- 
sion of  F.  S.  Wright,  cashier  of  the  First  National  Bank  of  Newirk, 
as  collateral.  Wright  was  also  vice-president  of  the  plaintiff,  and 
looked  after  its  insurance.  On  the  30th  day  of  June,  1884,  after 
writing  and  executing  the  two  new  policies,  and  entering  the  can- 
cellation of  the  one  for  which  they  were  intended  to  be  substituted, 
the  agcat  called  at  the  bank  to  see  Mr.  Wright,  take  up  the  policy 
so  held  by  him,  and  deliver  the  new  ones  in  its  place.  Wright  was 
absent,  and  the  agent  failed  to  see  him.  He  called  several  times 
withm  the  next  day  or  two  with  like  results,  and  did  not  see  ^Vright 
until  the  evening  of  July  3,  1884,  after  the  bank  had  closed.  The 
agent  then  informed  Wright  that  at  the  request  of  the  Norwich 
Union  Company  he  had  canceled  its  policy  for  $5,000  which  Wright 
then  held,  and  issued  to  the  plaintiff  m  its  place  two  other  policies 
for  .$2,500  each,  which  he  proposed  to  deliver,  and  take  up  the  can- 
celed policy.  Wright  replied  that  was  all  right;  all  he  wanted  was 
to  have  it  so  that  the  amount  was  the  same;  and  he  (the  agent) 
could  call  at  the  bank  any  time  when  it  was  open,  and  make  the 
exchange,  and  if  he  (Wright)  was  not  in,  the  person  in  charge 
would  make  the  exchange  for  him.  There  appears  to  have  been  no 
reason  why  the  exchange  was  not  made  at  the  time  of  the  interview 
oi  the  evening  of  July  3d,  except  that  the  bank  was  then  closed. 
No  claim  was  thereafter  made  by  the  plaintiff  to  the  canceled  policy; 
nor  was  there  any  question,  at  the  trial,  of  Wright's  authority  to 
act  for  the  plaintiff,  or  of  that  of  the  agent.  Murphy,  to  act  for  the 
defendant.  The  property  was  totally  destroyed  by  fire  on  the  5th 
day  of  July,  1880.  At  that  time  the  new  policies  had  not  been 
actually  delivered,  or  the  old  one  taken  up.  Immediately  after  the 
fire,  the  defendant  was  notified  of  it  by  telegram  from  the  agent, 
who  received  from  the  defendant  the  following  response:  "  Yours 
received.  Have  telegraphed  you  for  list  of  companies  on  stock 
with  us.  The  list  sent  to  Cincinnati  made  no  mention  of  Kenton, 
and  we  were  willing  to  be  ignored.     George  C.  Coker,  Secretary." 


96  FORMATION   OF   THE   CONTRACT. 

It  was  admitted  on  the  trial  that  proof  of  tlie  loss  was  duly  made 
and  filed  with  the  defendant;  that  Wright  then  had  no  interest  in 
the  claim;  and,  if  the  plaintiff  was  entitled  to  recover,  the  amount 
of  the  recovery  should  be  $2,500,  with  interest  from  September  30, 
18S4. 

It  does  not  appear  that  the  names  of  the  companies  in  which  the 
new  policies  had  been  written  were  mentioned  in  the  interview 
between  Wright  and  the  defendant's  agent,  nor  the  rate  or  amount 
of  the  premium,  nor  the  duration  or  conditions  of  the  policies;  and 
it  is  claimed  by  the  defendant  that  there  was,  therefore,  no  mutual 
assent  of  the  parties  to  either  of  those  terms,  and  so  no  completed 
contract  of  insurance  between  them.  It  is  undoubtedly  true  that 
those  are  essential  elements  of  a  contract  of  insurance,  and,  if  there 
was  not  a  meeting  of  the  minds  of  the  parties  upon  them,  the  con- 
tract was  not  consummated,  and  no  risk  attached.  But  it  is  equally 
true  that  the  agreement  need  not  be  e.xpressed  in  words;  it  may  be 
implied  from  the  circumstances,  and  conduct  of  the  parties. 

If  the  case  of  Cockerill  v.  hisiirance  Co.,  16  Ohio,  148,  in  which  it 
was  held  that  a  policy  of  insurance,  to  bs  valid,  must  be  in  writing, 
was  not  virtually  overruled  by  the  case  of  Insurance  Co.  v.  Kelly,  24 
Ohio  St.  345,  as  it  was  said  to  have  been  by  Okev,  J.,  in  the  case 
of  Insurance  Co.  v.  Wall,  31  Ohio  St.  d^i,  it  has  been  so  qualified 
by  these  subsequent  cases  as  to  limit  the  rule  it  announced  to  poli- 
cies in  their  strict  technical  sense,  and  leave  unaffected  by  it  parol 
contracts  of  insurance. 

It  is  now  well  settled  that  a  policy  is  only  evidence  of  the  con- 
tract, and  the  latter  may  be  shown  by  parol,  when  the  policy  has 
not  been  written,  or  is  withheld,  unless  such  contract  is  forbidden 
by  statute  or  a  provision  of  the  company's  charter  which  is  brought 
to  the  notice  of  the  other  contracting  party,  (Ostr.  Ins.  §§  13,  14; 
Richards  Ins.  §  140;  Insurance  Co.  v.  Sliaic,  94  U.  S.  574;  Insurance 
Co.  v.  Kelly,  supra;  Palm  v.  Insurance  Co.,  20  Ohio,  529,  537)  and, 
as  in  other  cases  of  parol  contracts,  the  terms  of  the  agreement, 
and  the  assent  of  the  parties  to  them,  may  be  shown  by  their  acts 
and  the  attending  circumstances,  as  well  as  the  words  they  have 
employed.  There  was,  in  this  case,  no  express  agreement  in  regard 
to  the  property  to  be  insured  by  the  new  policies.  The  property 
was  not  mentioned  in  the  interview  between  the  defendant's  agent 
and  Wright.  But,  as  it  was  agreed  the  new  policies  were  to  be 
exchanged  for  the  canceled  policy,  it  must  have  been  as  clearly 
understood  as  if  it  had  been  expressly  stated  that  they  were  to 
cover  the  property  inclu.led  in  the  canceled  policy.  So,  in  regard 
to  the  rate  and  amouni    of   the  premium,  and  form  and  conditions 


CONSUMMATION   OF   THE   CONTRACT.  97 

of  the  polic)-.  It  is  not  claimed  that  the  conditions  of 
the  defendant's  policies,  or  its  rate  of  insurance,  are  different 
from  those  of  like  companies;  and  it  is  generally  known  that  the 
form  and  conditions  of  fire  policies  in  use  by  good  companies  do 
not  differ  substantially,  and  the  rates  of  insurance  are  established 
and  uniform  on  the  same  classes  of  property.  And,  where  nothing 
is  said  in  the  negotiation  for  insurance  about  special  rates  or  con- 
ditions, it  may  be  presumed  t^hat  those  which  were  usual  and  cus- 
tomary were'  intended.  In  Richards  on  Insurance  (2d  ed.  §  42)  it 
is  laid  down  as  a  general  rule  that,  "  whether  the  contract  of  insur- 
ance is  closed  by  parol  or  by  a  preliminary  binding  receipt,  the  legal 
presumption  is  that  the  usual  policy  is  to  follow."  And  in  the  pre- 
ceding section  the  same  author  says  that  it  is  not  necessary  that  all 
the  particulars  of  a  contract  should  be  made  the  subject  of  express 
stipulation,  "  for  it  may  well  be  understood,  in  the  absence  of 
express  declaration  to  the  contrary,  that  the  usual  form  of  policy  is 
acceptable  to  both  parties."  It  was  held  by  the  Supreme  Court  of 
Minnesota,  in  Salisbury  v.  Insurance  Co.,  32  Minn.  460,  21  N.  \V, 
552,  that  "  upon  an  oral  contract  of  insurance,  where  nothing  is 
said  about  conditions,  if  a  policy  is  to  be  issued,  the  parties  are 
presumed  to  intend  that  it  shall  contain  the  conditions  usually 
inserted  in  policies  of  insurance  in  like  cases."  And  in  Eamesw 
Insurance  Co.,  94  U.  S.  629,  Mr.  Justice  Bradley  says:  "  It  is 
sufficient  if  one  party  proposes  to  be  insured,  and  the  other  party 
agrees  to  insure,  and  the  subject,  the  period,  the  amount,  and  the 
rate  of  insurance  is  ascertained  or  understood,  and  the  premium 
paid  if  demanded.  It  will  be  presumed  that  they  contemplate  such 
form  of  policy,  containing  such  conditions  and  limitations,  as  are 
usual  in  such  cases,  or  have  been  used  before  between  the  parties. 
This  is  the  sense  and  reason  of  the  thing,  and  any  contrary  require- 
ment should  be  expressly  notified  to  the  party  to  be  affected  by  it." 
Upon  the  facts  of  the  present  case  there  can  be  but  little  doubt 
that  the  contract  of  insurance  made  by  the  defendant,  through  its 
agent,  with  the  plaintiff,  was  complete  in  all  its  terms.  The  plain- 
tiff had  previously  arrranged  with  the  agent  to  keep  its  insurance 
up  to  a  certain  amount  in  good  companies,  for  which  he  was  author- 
ized to  act.  This  arrangement  virtually  left  the  selection  of  the 
companies  to  the  discretion  of  the  agent;  and,  acting  under  it,  he 
had  written  the  policy  of  the  defendant  and  the  new  policy  of  the 
Norwich  Union  Company,  each  for  $2,500,  and  duly  countersigned 
both,  ready  for  delivery  to  the  plaintiff,  and  entered  the  cancellation 
of  the  policy  which  Wright  had  in  his  possession  before  the  inter- 
view of  July  3d.     The  policy  of  the  defendant  was  then  complete 

LAW  OF  INSURANCE  —  ■? 


98  FORMATION   OF   THE   CONTRACT. 

containing  a  description  of  tlie  property,  the  amount,  comnience- 
uient  and  duration  of  the  risk,  the  rate  and  amount  of  the  premium, 
and  all  the  terms  and  conditions  usual  in  such  policies.  This  policy, 
and  the  new  policy  of  the  Norwich  Union,  the  agent  proposed  to 
Wright  to  exchange  for  the  canceled  policy,  without  condition  or 
qualification.  Tne  proposition  was  immediately  assented  to  and 
accepted  without  any  qualification  or  condition  whatever.  The 
terms  of  the  contract  of  insurance  thus  proposed  by  the  defendant, 
thrjugh  its  agent,  were  definite  and  certain  in  every  particular. 
They  were  those  set  forth  in  the  policy.  The  acceptance  was  as 
broad  as  the  proposition,  and  was,  therefore,  an  acceptance  of  all 
the  terms  and  conditions  of  the  policy  as  it  was  written.  That  tne 
plaintiff  chose  to  accept  the  proposition  unqualifiedly  without  further 
inquiry  or  examination  affords  the  defendant  no  ground  for  claim- 
ing the  contract  was,  on  that  account,  incom|)lete.  The  only  reason 
the  exchange  was  not  made  was  that  the  canceled  policy  was  locked 
up  in  the  bank.  The  parties  evidently  regarded  the  exchange  as 
complete,  and  thereafter  the  agent  was  a  mere  custodian  of  the 
policy  in  question  for  the  plaintiff,  and  the  actual  handing  of  it  over 
was  not  essential  to  the  risk.  Effect  will  be  given  to  the  intention 
of  the  parties,  and  what  their  conduct  shows  they  considered  a 
delivery  must  control  in  determining  whether  it  was  made.  Bid. 
Ins.  §  149;  Dibble  v.  Assurance  Co.,  70  Mich,  i,  37  N.  W.  704; 
Bodinc  V.  Insurance  Co.,  51  N.  Y.  117;  11  Amer.  &  Eng.  Enc.  Law, 
p.  285.  It  is  quite  evident  the  agent  considered  the  policy  of  the 
defendant  in  full  force.  He  reported  it  as  such  to  the  company; 
and  that  the  latter  so  treated  it,  even  after  the  fire,  is  shown  by  its 
telegram  to  the  agent,  inquiring  what  companies  were  "  on  stock 
with  us."  The  policy  was  on  the  stock  of  the  plaintiff  in  its  manu- 
factory. The  manual  surrender  by  VViight  of  the  policy  in  his  pos- 
session was  not,  we  think,  necessary  to  effect  its  cancellation.  His 
assent  to  the  cancellation  made  by  the  agent  was  sufficient.  It 
then  ceased  to  be  of  any  force,  and  was  so  treated  by  the  par- 
ties.    *     *     * 


MARKEY  V.  MUTUAL  BENEFIT  INS.  CO. 

118  Mass.  178.  —  1875. 

Gray,C.  J.  — The  plaintiff  undertook  to  prove  a  contract  by  the 
defendant  to  insure  $3,000  on  the  life  of  her  husband,  payable  to 
her:  1st,  by  a  policy  executed  by  the  defendant,  and  delivered  by 
Wells  as  its  agent  to  the  plaintiff;  2d,  by  a  contract  to  insure  inde- 
pendently of  any  policy. 


CONSUMMATION    OF   THE   CONTRACT.  99 

X.  Upon  the  issue  whether  the  policy  was  1  contract  binding  the 
defendant,  one  question  submitted  to  the  jury  was  whether  Wells 
"  did  deliver  the  policy  to  the  plaintiff,  intending  to  vest  the  prop- 
erty in  her." 

Upoa  this  question  the  testimony  introduced  by  the  plaintiff  did 
not  subnantially  differ  from  that  introduced  at  the  former  trial,  and 
which  this  court,  for  reasons  fully  stated  in  103  Mass.  78,  which  upon 
reconsideration  we  are  satisfied  with,  and  do  not  propose  to  recapitu- 
late, held  insufficient  to  warrant  a  jury  in  finding  such  intention. 

It  aniDunted  to  this  and  no  more:  That  the  husband  being  ill  at 
home,  VVels  came  to  the  house,  bringing  the  policy  with  him,  and 
passed  it  to  the  husband,  saying  he  had  brought  him  his  policy; 
that  the  husband  said  he  was  glad  of  it,  he  had  been  expecting  it 
for  some  days  past;  that  he  took  the  policy  and  read  it  over,  and 
handed  it  to  his  wife,  saying,  "  Eliza,  there  is  your  policy,"  and  she 
took  it  and  glanced  it  over,  and  laid  it  upon  the  table;  that  the 
husband  told  W-Us  "  that  he  was  not  well  enough  to  go  out  and  get 
the  money  to  pay  for  the  policy,  that  he  had  made  an  arrangement 
with  Mr.  Banks  over  at  the  shop  to  get  the  money  and  pay  it  to 
him,"  and  Wells  said,  "  he  would  go  over  directly  to  Mr.  Banks  and 
get  the  money  for  the  policy;"  that,  when  Wells  started  to  go  out, 
the  wife  took  the  policy  from  the  table  and  passed  it  to  him,  saying, 
"  If  you  are  going  to  Mr.  Banks  for  the  money  you  may  need  the 
policy;  and  may  as  \vell  take  it  and  leave  it  with  him,"  and  Wells 
took  the  policy;  that  her  object  in  giving  the  policy  to  Wells  was 
that  she  supposed  he  was  going  to  Banks  to  get  the  money,  and 
Banks  would  want  to  see  the  amount;  and  that  upon  her  learning 
the  next  morning  from  Banks  that  the  policy  had  not  been 
delivered  to  him  by  Wells,  the  money  was  immediately  sent  to 
Boston  for  the  policy. 

The  direction  to  leave  the  policy  with  Banks  had  no  tendency  to 
prove  that  the  policy  had  been  delivered;  for  it  was  equally  con- 
sistent with  the  alternative  that  it  was  to  be  delivered  to  Banks,  for 
the  use  of  the  plaintiff,  upon  his  payment  of  the  premium  to  Wells. 
The  testimony  of  the  plaintiff  that,  when  she  took  the  policy  from 
her  husband  in  the  presence  of  Wells,  she  understood  it  was  deliv- 
ered to  her  to  keep,  whatever  its  legal  competency  and  weight 
might  be  on  the  question  of  her  own  intention,  had  no  tendency  to 
prove  the  intention  of  Wells. 

The  testimony  of  Wells,  upon  the  question  whether  he  had 
authority  to  deliver  policies  without  payment  of  the  premium,  added 
nothing  to  the  evidence  upon  the  question  whether  he  actually 
intended  to  deliver  this  policy. 


lOO  FORMATION    OF   THE   CONTRACT. 

The  whole  evidence  was  in  our  opinion  insufficient  to  warrant  the 
jury  in  finding  that  the  policy  had  been  delivered  so  as  to  constitute 
a  binding  contract. 

2.  The  plaintiff's  own  testimony,  already  stated,  shows  that  the 
only  form  of  contract  of  insurance,  contemplated  by  the  parties, was 
by  a  policy  issued  by  the  defendant  upon  the  written  application  of 
the  assured,  and  there  is  no  evidence  whatever  that  the  defendant 
intended,  or  was  understood  by  the  assured  or  the  plaintiff  to  intend, 
to  make  a  contract  of  insurance  in  any  other  form.  Real  Estate  Ins. 
Co.  V.  Roessle,  i  Gray,  336;  Sanborn  v.  Firemaiis  /ns.  Co.,  16  Gray, 
448,  454;  Hoytv.  Mutual  Beriefit  Ins.  Co.,  98  Mass.  539;  Heiman  v. 
Phtvnix  Ins.  Co.,  17  Minn.  153. 

This  point  having  been  presented  by  the  defendant  in  a  distinct 
request  for  instruction  at  the  trial,  for  the  manifest  purpose  of 
reserving  the  question,  and  overruled  by  the  presiding  judge,  is 
clearly  open  upon  these  exceptions.  Esty\.  JVihnot,  15  Gray,  168; 
Markey  v.  Mutual  Benefit  Ins.  Co.,    103  Mass.  78,  87. 

The  jury  having  been  erroneously  instructed  as  to  the  sufficiency 
of  the  evidence  upon  each  of  the  grounds  upon  which  the  plaintiff 
sought  to  recover,  the  defendant's 

Exceptions  must  be  sustained. 


LIPMAN  V.  NIAGARA  FIRE  INS.  CO. 

121  N.  Y.  454.  —  1890. 

This  was  an  action  upon  an  agreement  of  insurance  evidenced  by 
what   is   termed  by  insurance   men  a  "  binding  slip,"  which  was  in 

these  words: 

"  Pell,  Wallack  &  Co.,  Insurances,  ) 

"  55  Liberty  Street,  New  York,  Sept.  2,  1885.  f 
"  The  undersigned  do  insure  for  account  of  Shaped  Seamless 
Stocking  Co.  amounts  as  specified  below  at  i\  for  12  months  from 
Sept.  2,  1885,  on  machinery  and  stock,  building  No.  3  (as  per  form, 
building  situate  Randall's  Island,  N,  Y.)  This  receipt  binding 
until  policy  is  delivered  at  the  office  of  Pell,  Wallack  &  Co. 

Company.                                                                          Amount.                Accepted  by 
Niagara $2,500 Pollock." 

Andrews,  J.  — The  binding  slip  signed  by  the  defendant  was  not 
a  mere  agreement  to  insure,  but  was  a  present  insurance  to  the 
amount  specified  therein.  The  instrument  is  informal.  It  states 
on  whose  account  the  insurance  is  made,  the  property  covered,  the 
amount  insured,  the   term   of  the   insurance   and  the  date.     But  it 


CONSUMMATION   OF   THE   CONTRACT.  lOI 

does  not  specify  the  risk  insured  against,  nor  does  it  contain  any 
conditions  such  as  are  usually  found  in  insurance  policies.  The 
evident  design  of  the  writing  as  disclosed  by  the  testimony,  was  to 
provide  temporary  insurance  pending  an  inquiry  by  the  company  as 
to  the  character  of  the  risk,  or,  if  that  was  known,  during  any  delay 
in  issuing  the  policy. 

The  secretary  of  the  defendant  signed  the  binding  slip  upon  the 
solicitation  of  Pell,  Wallack  &  Co.,  insurance  brokers  of  the  plain- 
tiff, in  the  afternoon  of  September  2,  1885.  The  officers  of  the 
defendant  having  made  inquiry  as  to  the  risk,  notified  the  plaintiff's 
brokers  before  one  o'clock  of  the  afternoon  of  September  3d,  that 
the  defendant  declined  it.  The  property  described  in  the  binding 
slip  was  destroyed  by  fire  in  the  afternoon  of  September  3d,  the  fire 
having  commenced  about  three  o'clock. 

The  claim  on  the  one  side  is  that  the  binding  slip  was  a  complete 
and  perfect  contract,  binding  the  defendant  according  to  its  lan- 
guage, "  until  policy  is  delivered  at  the  office  of  Pell,  Wallack  & 
Co.,"  and  not  terminable,  therefore,  by  notice  prior  to  that  time, 
or,  if  so  terminable,  then  only  upon  reasonable  notice,  which,  as  is 
claimed,  was  not  given,  nor  in  any  event  upon  notice  to  the  plain- 
tiff's brokers,  they  not  being  agents  of  the  plaintiff  for  the  purpose 
of  receiving  such  notice. 

It  is  insisted  on  the  other  side  that  the  contract  evidenced  by  the 
binding  slip  was  a  contract  subject  to  the  conditions  contained  in 
the  ordinary  policy  in  use  by  the  company,  one  of  which  contained 
the  following  clause: 

"  This  insurance  may  be  determined  at  any  time  by  request  of 
the  assured,  or  by  the  company  on  giving  notice  to  that  effect  to 
the  assured,  or  tu  the  person  who  may  have  procured  this  insurance 
to  be  taken  by  this  company." 

The  notice  given  on  the  third  of  September  prior  to  the  fire  ter- 
minated, as  is  insisted,  the  contract  of  insurance  pursuant  to  this 
condition.  We  think  there  can  be  no  doubt  that  the  true  construc- 
tion of  the  binding  slip  only  obligated  the  defendant  according  to 
the  terms  of  the  policy  in  ordinary  use  by  the  company.  There  is 
no  other  reasonable  interpretation  of  the  transaction.  The  bindiug 
slip  was  a  short  method  of  issuing  a  temporary  policy  for  the  con- 
venience of  all  parties,  to  continue  until  the  execution  of  the  formal 
one.  It  would  be  unreasonable  to  suppose  either  that  the  brokers 
expected  an  insurance  except  upon  the  usual  terms  imposed  by  the 
company,  or  that  the  secretary  of  the  company  intended  to  insure 
upon  any  other  terms.  The  right  of  an  insurance  company  to 
terminate   a   risk  is  an  important  one.     It  is  not  reserved  in  terms 


I03  FORMATION    OF   THE   CONTRACT. 

in  the  binding  slip  and  could  not  be  exercised  at  all  so  long  as  no 
policy  should  be  issued,  unless  the  condition  in  the  policy  is  deemed 
to  be  incorporated  therein. 

Upon  the  plaintiff's  contention  the  company  could  not  cancel  the 
risk  so  long  as  the  binding  slip  was  in  force,  and  the  only  remedy 
of  the  company  to  get  rid  of  the  risk  would  be  to  issue  the  policy 
and  then  immediately  cancel  it.  The  binding  slip  was  a  mere  memo- 
randum to  identify  the  parties  to  the  contract,  the  subject-matter 
and  the  principal  terms.  It  refers  to  the  policy  to  be  issued.  The 
construction  is,  we  think,  the  same  as  though  it  had  expressed  that 
the  present  insurance  was  under  the  terms  of  the  usual  policy  of  the 
company  to  be  thereafter  delivered. 

The  trial  judge  was  of  the  opinion  that  the  binding  slip  was  not 
a  complete  and  independent  contract  of  insurance,  subject  to  no 
conditions,  but  he  ruled  that  the  obligation  of  the  defendant  was 
to  be  determined  by  the  question,  whether  the  condition  in  the 
defendant's  policy,  that  the  company  might  terminate  the  policy  by 
notice  to  the  "  person  who  procured  the  insurance,"  was  a  usual 
one,  and  submitted  the  case  to  the  jury  on  that  issue.  The  case  of 
De  Grcrve  v.  Metropolitan  Ins.  Co..,  6i  N.  Y.  594,  is,  we  think,  a 
decisive  authority  against  the  view  of  the  learned  trial  judge.  The 
General  Term  dissented  from  the  ruling  of  the  trill  judge  on  this 
point,  and  held  that  notice  to  Pell,  Wallack  &  Co.,  the  brokers  who 
procured  the  insurance,  was  authorized  by  the  condition  in  the  policy. 
It,  however,  sustained  the  judgment  on  the  ground  that  notice  did 
not  terminate  the  contract  until  a  reasonable  time  had  elapsed  after 
it  was  given,  and  that  the  two  and  a  half  hours  which  intervened 
between  the  notice  and  the  happening  of  the  fire  was  not  such  reason- 
able time,  and  that  consequently  the  insurance  was  then  in  force. 

We  think  there  can  be  no  reasonable  doubt  upon  the  language  of 
the  condition  that  notice  to  the  brokers  was  a  good  notice,  and  that 
if  otherwise  sufficient,  it  terminated  the  defendant's  liability.  The 
brokers  procured  the  insurance.  In  fact  their  duties  in  respect  to 
it  had  not  been  terminated.  The  binding  slip  provided  that  the 
policy,  when  issued,  should  be  delivered  at  their  office.  The  notice 
was  given  to  persons  to  whom  notice  might  be  given  by  the  express 
language  of  the  policy.  The  special  language  of  the  condition  in 
the  defendant's  policy  upon  this  point  was,  it  is  said,  inserted  to 
meet  the  objections  pointed  out  by  this  court  in  Hermann  v.  Niagara 
F.  Ins.  Co.,  100  N.  Y.  415. 

It  remains  to  consider  whether  under  the  condition  the  policy 
terminated  eo  instanti  ox\  notice  by  the  company.  There  is  na  lan- 
guage which  postpones  the  effect  of  notice  until  the  lapse  of  a  rea- 


CONSUMMATION    OF   THE   CONTRACT.  I03 

aonable  time  thereafter.  The  rule  is  well  settled  that  where  a  per- 
son undertakes  to  do  an  act  upon  notice  from  another,  it  is  implied 
that  he  shall  have  a  reasonable  time  after  he  is  called  upon  to  do 
the  thing,  or  render  the  service,  and  no  time  for  performance  being 
specified,  the  law  gives  him  a  reasonable  time.  But  where  a  con- 
tract fixe§  ihQ  time  of  performance,  the  rule  of  a  reasonable  time 
has  no  application.  We  have  been  referred  to  no  case,  nor  have  we 
found  any,  which  sanctions  the  doctrine  that  where  one  has  assumed 
an  obligation  which  is  to  continue  until  notice  given  to  the  other 
party,  the  obligation  continues  after  notice.  If  in  this  case  the 
premium  has  been  paid  beyond  the  period  when  notice  was  given, 
then  the  bare  notice  would  not  have  terminated  the  risk.  But  this 
for  the  reason  that  the  company  is  bound  in  such  case,  in  order  to 
terminate  the  policy,  not  only  to  give  notice,  but  to  refund  or  offer 
to  refund  the  insurance  premium.  This  is  the  construction  placed 
on  clauses  like  the  one  in  question.  The  cancellation  in  such  case 
only  takes  place  on  notice  and  return  of  the  premium  for  the  unex- 
pired term.  Va/i  Valkenburgh  v.  Lenox  Fire  Ins.  Co.,  51  N.  Y.  465; 
Wood  on  Fire  Ins.,  §  106. 

The  privilege  reserved  by  the  company  to  terminate  the  policy  on 
notice,  cannot  be  exercised  under  the  circumstances  which  would 
make  it  operate  as  a  fraud  on  the  insured,  as  in  case  of  notice  given 
pending  an  approaching  conflagration,  threatening  to  destroy  the 
property  insured.      Home  Ins.  Co.  v.  Heck,  65  111.   rii. 

In  the  present  case  no  premium  had  been  paid.  The  notice  was 
given  in  good  faith.  There  was  no  special  emergency  at  the  time. 
It  was  given  during  business  hours,  in  ordinary  course. 

The  contract  provides  that  it  should  be  terminated  on  notice. 
We  perceive  no  reason  why  the  contract  should  not  be  construed 
according  to  its  terms.  The  parties  might  have  provided  that  the 
risk  should  be  carried  by  the  company  after  notice  for  a  reasonable 
time,  to  enable  the  insured  to  place  it  elsewhere.  But  they  did  not 
do  so,  and  even  if  a  custom  of  that  kind  had  been  proved,  which  was 
not,  it  would  have  been  inadmissible  to  change  or  extend  the  explicit 
language  of  the  contract.  We  think  the  cancellation  was  effected 
at  the  time  of  the  service  of  the  notice.  Mueller  v.  South  Side  Fire 
Ins.  Co.,  87  Penn.  St.  399;   Grace  v.  Am.  C.  Ins.  Co.,  109  U.  S.  278. 

The  judgment  should,  therefore,  be  reversed  and  a  new  trial 
granted. 

All  concur.  Judgment  reversed.' 

'"A  '  binding  slip'  issued  by  an  insurance  company  to  insurance  brokers, 
commencing  with  the  word  '  insure,'  specifying  certain  property,  giving  the 
name  of  the  owner,  expressing  d  specified  sum  and  a  period  of  twelve  monca, 


104  FOR>rATinN'    OF   THE   CONTRACT. 

VI.  Reality  of  Consent. 

a.  Concealment. 

WALDEN  V.  LOUISIANA  INS.  CO. 

12  La.  134.  —  1838. 

Martin,  J.  —  The  plaintiff  is  appellant  from  a  judgment,  which 
rejected  his  claim  for  the  value  of  a  house,  insured  by  the  defend- 
ants, and  which  was  destroyed  by  fire. 

The  facts  of  the  case  are  these:  A  ropewalk,  which  was  so  con- 
tiguous to  the  house,  that  the  destruction  of  the  former  by  fire, 
must  necessarily  have  involved  the  latter  in  the  like  calamity;  it  was 
rumored,  that  an  attempt  had  been  made  to  set  fire  to  the  ropewalk, 
which  induced  the  plaintiff  to  insure  the  house.  The  defendants 
resisted  his  claim,  on  the  ground,  that  he  had  not  communicated 
the  circumstance,  which  had  excited  his  alarm  and  determined  him 
to  insure. 

It  appears  to  us,  the  District  Court  did  not  err.  The  underwriter 
had  an  undoubted  right  to  be  informed  of  every  circumstance, 
which,  creating  or  increasing  the  risk  against  which  insurance  is 
sought,  may  induce  him  tb  decline  the  insurance,  or  demand  a 
higher  premium.  It  appears,  from  the  defendant's  own  confession, 
that  the  attempt  which  had  been  made,  to  set  on  fire  a  building, 
which  could  not  have  been  consumed  without  materially  endanger- 
ing his  house,  created  in  him  an  alarm,  which  prompted  him  to 
guard  against  the  danger. 

It  is  true,  he  evidently  acted  in  good  faith;  for  when  he  called  on 
the  defendants  for  indemnification,  he  candidly  informed  them  of 
the  circumstance  which  had  alarmed  him.  His  ignorance  of  his 
duty  cannot  protect  him  against  his  omission  to  give  information  of 
a  material  fact,  which  the  defendants  had  a  right  to  know,  in  order 
to  establish  the  proper  rate  of  insurance. 

It  is,  therefore,  ordered,  adjudged  and  decreed,  that  the  judge- 
ment of  the  District  Court  be  affirmed,  with  costs. 


but  adding  '  this  memo,  to  be  void  on  delivery  of  the  policy,'  is  not  on  its  face 
such  a  perfect  and  complete  contract  of  insurance  as  to  preclude  parol  evidence 
of  a  usage  between  insurance  brokers  and  insurance  companies  and  of  an  actual 
intention  of  the  parties  that  the  slip  should  be  binding  only  until  action  upon  a 
pending  application  for  renewal  of  a  policy,  and  should  not  survive  the  rejec- 
tion, of  the  application  and  notice  to  that  efifect  to  the  insured."  —  Syllabus  in 
Underwood  \.  Ins.  Co.,  161  N.  Y.  413 


REALITY    OF   CONSENT.  IO5 

Bronson,  J.,  IN  BURRITT  v.  SARATOGA  COUNTY 
MUTUAL  FIRE  INS.  CO. 

5  Hill.  (N.  Y.)  188,  191.  —  1843. 

In  marine  insurance  the  misrepresentation  or  concealment  by  the 
assured  of  a  fact  material  to  the  risk  will  avoid  the  policy,  although 
no  fraud  was  intended.  It  is  no  answer  for  the  assured  to  say  that 
the  error  or  suppression  was  the  result  of  mistake,  accident,  forget- 
fulness  or  inadvertence.  It  is  enough  that  the  insurer  has  been 
misled,  and  has  thus  been  induced  to  enter  into  a  contract  which, 
upon  correct  and  full  information,  he  would  either  have  declined, 
or  would  have  made  upon  different  terms.  Although  no  fraud  was 
intended  by  the  assured,  it  is  nevertheless  a  fraud  upon  the  under- 
writer, and  avoids  the  policy.  Bridges  v.  Hunter,  i  Maule  &  Selw. 
15;  Macdowall  v.  Fraser,  Doug.  260;  Fitzherbert  v.  Mather,  i  T.  R. 
12;  Carter  v.  Boehm,  3  Burr.  1905;  Bufe  v.  Turner,  6  Taunt.  338; 
Curry  v,  Commomoealth  Ins.  Co.,  10  Pick.  535;  N.  V.  Boivery  Ins.  Cj- 
v.  N.  Y.  Fire  Ins.  Co.,  17  Wend.  359;  i  Marsh.  Ins.  (Condy),  451- 
453,  465;  I  Phil.  Ins.  214,  303.  The  assured  is  bound,  although  no 
inquiry  be  made,  to  disclose  every  fact  within  his  knowledge  which 
is  material  to  the  risk.  But  this  doctrine  cannot  be  applicable,  at 
least  not  in  its  full  extent,  to  policies  against  fire.  If  a  man  is  con- 
tent to  insure  my  house  without  taking  the  trouble  to  inquire  of 
what  materials  it  is  constructed,  how  it  is  situated  in  reference  to 
other  buildings,  or  to  vvhat  uses  it  is  applied,  he  has  no  ground  for 
complaint  that  the  hazard  proves  to  be  greater  than  he  had  antici- 
pated, unless  I  am  chargeable  with  soma  misrepresentation  con- 
cerning the  nature  or  extent  of  the  risk.  It  is,  therefore,  the  practice 
of  companies  which  insure  against  fire  to  make  inquiries  of  the 
assured  in  some  form,  concerning  all  such  matters  as  are  deemed 
material  to  the  risk,  or  which  may  affect  the  amount  of  premium  to 
be  paid.  This  is  sometimes  done  by  the  conditions  of  insurance 
annexed  to  the  policy,  and  sometimes  by  requiring  the  applicant  to 
state  particular  facts  in  a  written  application  for  msurance.  When 
thus  called  upon  to  speak,  he  is  bound  to  make  a  true  and  full  rep- 
resentation concerning  all  the  matters  brought  to  his  notice,  and 
any  concealment  will  have  the  like  effect  as  in  the  case  of  a  marine 
risk.  (See  i  Phil.  Ins.  284,  285,  ed  of  1840.)  It  is  not  necessary 
for  the  purpose  of  avoiding  the  policy,  to  show  that  any  fraud  was 
intended.  It  is  enough  that  information  material  to  the  risk  was 
required  and  withheld. 

This  doctrine  is  fatal  to  the  present  action.  The  plaintiff  was 
plainly  and  directly  called  upon  to  state  the  relative  situation  of  the 


I06  FORMATION   OF   THE   CONTRACT. 

store  as  to  all  other  builJings  witliiii  the  distance  of  ten  rods;  and 
he  omitted  to  mention  several  buildings  which  stood  within  that 
distance,  and  among  the  number  was  one  which  was  far  more  haz- 
ardous than  that  to  which  the  policy  applied.  If  there  could  be  any 
doubt  that  the  facts  concealed  were  material  to  the  risk,  the  ques- 
tion should  have  been  left  to  the  jury. 


PROUDFOOT  7'.  MONTEFIORE. 

L.  R.  2  Q.  B.  511.  — 1867. 

DECLAR.A.TION  agaiust  the  defendant  as  chairman  of  the  Alliance 
Marine  Assurance  Company,  claiming  damages  from  the  company 
in  respect  of  tlie  company  not  having  delivered  to  the  plaintift'  a 
policy  of  insurance  on  certain  go  )Js  shipped  on  board  a  ship  called 
the  Anne  Duncan^  pursuant  to  an  agreement  alleged  by  the  plaintiff  to 
have  been  entered  into  between  the  plaintiff  and  the  company,  and 
in  respect  of  the  company  not  having  paid  the  sum  of  money  which 
the  plaintiff  alleged  would  have  become  due  on  such  policy  if  the 
same  had  been  so  delivered. 

The  plaintiff,  in  Liverpool,  employed  an  agent  at  Smyrna  to  buy 
madder  on  his  account,  and  to  ship  and  consign  the  cargoes  to  him; 
the  agent  purchased  and  shipped  a  cargo  of  madder,  and  advised 
the  plaintiff  on  the  12th  of  January,  and  sent  the  shipping  documents 
on  the  19th  of  January.  The  ship  sailed  on  the  23d  of  January,  but 
was  stranded  in  the  course  of  that  day,  and  the  cargo  became  a  total 
loss.  Intelligence  of  the  loss  was  communicated  to  the  agent  on 
the  24th  of  January,  and  on  the  26th,  the  next  post  day,  he  wrote 
to  the  plaintiff  announcing  the  loss,  but  purposely  abstained  from 
telegraphing,  in  order  that  the  plaintiff  might  not  be  prevented 
from  insuring.  The  plaintiff,  on  the  31st  of  January,  after  the 
receipt  of  the  letters  of  the  12th  and  19th,  but  before  the  receipt 
of  the  letter  of  the  26th,  and  without  any  knowledge  of  the  loss  — 
which,  however,  had  been  telegraphed  and  posted  in  Lloyd's  lists  — 
effected  an  insurance: 

CocKBURN,  C.  J.,  \afler  stating  the  facts  in  the  present  case,  and 
referring  approvingly  to  Fitzherbert  v.  Mather,  i  T.  R.  12,  16,  and 
Gladstone  v.  King,  i  M.  6- 6"".  jj,  jc?.]  An  eminent  authority,  the 
late  Mr.  Justice  Story,  has,  however,  declined  to  be  bound  by  these 
decisions.  In  a  case,  Ruggles  v.  Itis.  Co.,  4  Mason,  74,  tried  before 
him  on  a  policy  of  insurance  effected  after  a  total  loss,  where  the 
master  had  omitted  to  give  intelligence  of  the  loss  to  his  owner, 
with  the  fraudulent  design  of  enabling  him  to  make  an  insurance, 
and  the  insurance  had   been  effected  by  the  owner  in  ignorance  of 


REALITY    OF    CONSENT.  lO/ 

the  loss,  that  learned  judge  held  that,  as  the  owner  at  the  time  of 
procuring  the  insurance  had  no  knowledge  of  the  loss,  but  acted 
with  an  entire  gocd  faith,  he  was  not  precluded  from  recovering, 
and  that  the  policy  was  not  rendered  void  by  the  omission  of  ths 
master  to  communicate  intelligence  of  the  loss,  although  such  omis- 
sion was  wilful  and  fraudulent.  The  case  being  taken  to  a  court  of 
error,  12  Wheat.  408,  the  latter  upheld  the  decision;  not,  indee^i, 
on  the  grounds  taken  by  Mr.  Justice  Story,  but  on  the  very  unsatis- 
factory, and,  as  we  think,  untenable  grounJ,  that  by  the  total  loss 
of  the  vessel  the  master  had  wholly  ceased  to  be  the  agent  of  the 
owner,  and  had  become  the  agent  of  the  underwriters.  From 
the  language  of  the  judgment,  it  may  be  inferred  that  if  the 
Court  had  considered  that  the  relation  of  the  master  to  his  owners 
had  not  been  interrupted  by  the  loss  of  the  vessel,  they  would  not 
have  upheld  the  decision  appealed  from.  The  ruling  of  Mr.  Justice 
Story  has  been  discussed  by  Mr.  Duer,  in  his  admirable  work  on  ii.- 
surance,  ^'ol.  ii,  p.  418;  and  we  think  the  reasoning  of  the  learneJ 
writer  fully  establishes  his  conclusion  as  to  the  ruling  having  been 
erroneous.  Notwithstanding  the  dissent  of  so  eminent  a  jurist  as 
Mr.  Justice  Story,  we  are  of  the  opinion  that  the  cases  of  Fitzher- 
bert  V .  Mather^  and  Gladstone  v.  King^  were  well  decided;  and  that 
if  an  agent  whose  duty  it  is,  in  the  ordinary  ct)urse  of  business,  to 
communicate  information  to  his  principal  as  to  the  state  of  a  ship 
and  cargo,  omits  to  discharge  such  duty,  and  the  owner,  in  the 
absence  of  information  as  to  any  fact  material  to  be  communicated 
to  the  underwriter,  effects  an  insurance,  such  insurance  will  be  void, 
on  the  ground  of  concealment  or  misrepresentation.  The  insurer 
is  entitled  to  assume,  as  the  basis  of  the  contract  between  him  and 
the  assured,  that  the  latter  will  communicate  to  him  every  material 
fact  of  which  the  assured  has,  or,  in  the  ordinary  course  of  business, 
ought  to  have  knowledge;  and  that  the  latter  will  take  the  necessary 
measures,  by  the  employment  of  competent  and  honest  agents,  to 
obtain,  through  the  ordinary  channels  of  intelligence  in  use  in  the 
mercantile  world,  all  due  information  as  to  the  subject  matter  of 
insurance.  This  condition  is  not  complied  with  where,  by  the  fraud 
or  negligence  of  the  agent,  the  party  proposing  the  insurance  is  kept 
in  ignorance  of  a  material  fact, which  ought  to  have  been  made  known 
to  the  underwriter  and  through  such  ignorance  fails  to  disclose  it.' 

'  In  Blackburn  v.  Vigors,  12  A.  C.531,  it  was  held  that  a  policy^  of  marine  insur- 
ance was  not  affected  by  the  concealment  of  a  material  fact  which  was  anknovvn 
10  the  assured  and  to  the  broker,  though  il  had  co"^e  previously  to  the  knowl- 
edge of  a  different  broker  while  formerly  employed  bv  the  assured  to  effect 
another  policy  in  respect  of  the  same  risk. 


I08  FORMATION   OF   THE   CONTRACT. 

b.  Representations  and  Warranties. 

I.   In  General. 
PHCENIX  LIFE  INSURANCE  CO.  v.  RADDIN. 

I20  U.  S.  183.  —  1887. 

Gray,  J. — This  was  an  action  brought  by  Sewell  Raddin,  and 
prosecuted  by  his  administrator,  upon  a  policy  of  life  insurance 
dated  April  25,  1872,  the  material   parts   of  which  were  as  follows: 

"  This  policy  of  assurance  witnesseth  that  the  Phoenix  Mutual 
Life  Insurance  Company  of  Hartford,  Conn.,  in  consideration  of 
the  representations  made  to  them  in  the  application  for  this  policy, 
and  of  the  sum  of  one  hundred  and  fifty-two  dollars  and  ten  cents 
to  them  duly  paid  by  Sewell  Raddin,  father,  and  of  the  semi-annual 
payment  of  a  like  amount  on  or  before  the  twenty-fifth  day  of  April 
and  October  in  every  year  during  the  continuance  of  this  policy,  do 
assure  the  life  of  Charles  E.  Raddin,  of  Lynn,  in  the  county  of 
Essex,  State  of  Massachusetts,  in  the  amount  of  $10,000  for  the 
term  of  his  natural  life.  This  policy  is  issued  and  accepted  by  the 
assured  upon  the  following  express  conditions  and  agreements," 
namely,  among  others,  that  "  if  any  of  the  declarations  or  state- 
ments made  in  tlie  application  for  this  policy,  upon  the  faith  of 
which  this  policy  is  issued,  shall  be  found  in  any  respect  untrue, 
this  policy  shall  be  null  and  void."  The  application  was  signed  by 
Sewell  Raddin,  both  for  his  son  and  for  himself,  and  contained 
twenty-nine  printed  "  questions  to  be  answered  by  the  person  whose 
life  is  proposed  to  be  insured,  and  which  form  the  basis  of  the  con- 
tract," three  of  which,  with  the  written  answers  to  them,  and  the 
concluding  paragraph  of  the  application,  were  as  follows: 

"  (10)  Is    the    party  addicted  to  the 
habitual    use  of    spirituous  liquors  or     No. 
opium? 

"  (2S)  Has  any  application  been  made 
to  this  or  any  other  company  for  assur- 
ance  on   the  life  of  the  party?     If  so, 

with  what  result?     What  amounts  are     $10,000,     Equitable      Life     Assurance 
now  assured   on   the  life  of  the  parly.     Society, 
and  in    what   companies?     If   already 
assured  in  this  company,  state  the  No. 
of  policy  ? 

"  (29)  Is  the  party  and  the  applicant 
aware  that  any  untrue  or  fraudulent 
answers  to  the  above  queries,  or  any 
suppression  of  facts  in  regard  to  ihe  Yes. 
health,  habits,  or  circumstances  of  the 
party  to  be  assured,  will  vitiate  the  pol- 
icy, and  forfeit  all  payments  thereon? 


REALITY   OF   CONSENT.  IO9 

"  It  is  hereby  declared  thai  the  above  are  fair  and  true  answers  to  the  fore- 
going questions,  and  it  is  acknowledged  and  agreed  by  the  undersigned  that 
this  application  shall  form  the  basis  of  the  contract  for  insurance,  which  con- 
tract shall  be  completed  only  by  delivery  of  policy,  and  that  any  untrue,  or 
fraudulent  answers,  any  suppression  of  facts,  or  should  the  applicant  become 
as  to  habits,  so  far  different  from  condition  now  represented  to  be  in  as  to  make 
the  risk  more  than  ordinarily  hazardous,  or  neglect  to  pay  the  premium  on  or 
before  the  day  it  becomes  due,  shall  and  will  render  the  policy  null  and  void, 
and  forfeit  all  payments  made  thereon." 

It  was  admitted  at  the  trial  that  all  premiums  were  paid  as  they 
fell  due;  that  Charles  E.  Raddin  died  July  18,  1881;  and  that  at 
the  date  of  this  policy  he  had  an  endowment  policy  in  the  Equitable 
Life  Assurance  Society  for  $10,000,  which  was  afterwards  paid  to 
him. 

One  of  the  defenses  relied  on  at  the  trial  was  that  the  answer  to 
question  28  in  the  application  was  untrue,  and  that  there  was  a 
fraudulent  suppression  of  facts  material  to  the  insurance,  because 
the  plaintiff,  by  his  answer  to  that  question,  "$10,000,  Equitable 
Life  Assurance  Society, "  intended  to  have  the  defendant  understand 
that  the  only  application  which  had  been  made  to  any  other  com- 
pany for  assurance  upon  the  life  of  his  son  was  one  made  to  the 
Equitable  Life  Assurance  Society,  upon  which  that  society  had 
issued  a  policy  of  $10,000;  whereas  in  fact  the  plaintiff,  within  three 
weeks  before  the  application  for  the  policy  in  suit,  had  made  appli- 
cations to  that  society,  and  to  the  New  York  Life  Lisurance  Com- 
pany, for  additional  insurance  upon  the  son's  life,  each  of  which 
had  been  declined.  The  defendant  offered  to  prove  that  the  two 
other  applications  were  made  and  declined  as  alleged,  and  that  the 
facts  as  to  the  making  and  the  rejection  of  both  those  applications 
were  known  to  the  plaintiff,  and  intentionally  concealed  by  him,  at 
the  time  of  his  application  to  the  defendant;  and  upon  these  offers 
of  proof  asked  the  court  to  rule  —  First,  that  the  answer  to  ques- 
tion 28  was  untrue,  and,  therefore,  no  recovery  could  be  had  on  this 
policy;  second,  that  there  was  a  suppression  of  facts  by  the  plain- 
tiff, and  therefore,  he  could  not  recover;  and,  third,  "that  the 
answer  to  question  28  must  be  construed  to  be  an  answer  to  all  the 
clauses  of  that  question,  and  as  such  was  misleading,  and  amounted 
to  a  concealment  of  facts  which  the  defendant  was  entitled  to  know, 
and  the  plaintiff  was  bound  to  communicate."  But  the  court 
excluded  all  the  evidence  so  offered,  declined  to  give  any  of  the 
rulings  asked  for,  and  ruled  "  that,  if  the  answer  to  one  of  the  inter- 
rogatories of  question  28  was  true,  there  would  be  no  breach  of  the 
warranty;  that  the  failure  to  answer  the  other  interrogatories  of 
question  28  was  no  breach  of  the  contract;  and  that,  if  the  company 


no  FORMATION    OF   THE    CONTRACT. 

took  the  defective  apjjlication,  it  would  be  a  waiver  on  their  part  of 
the  answers  to  the  other  interrogatories  of  that  question."  The 
jury  having  returned  a  verdict  for  the  plaintiff  in  the  full  amount  of 
the  policy,  the  defendant's  exceptions  to  the  refusal  to  rule  as 
requested,  and  to  the  rulings  aforesaid,  present  the  principal  ques- 
tiu'.i  in  the  case. 

I'he  rules  of  law  which  govern  the  decision  of  this  question  are 
well  settled,  and  the  only  difficulty  is  in  applying  those  rules  to  the 
facts  before  us.  Answers  to  questions  propounded  by  the  insurers 
in  an  application  for  insurance,  unless  they  are  clearly  shown  by 
the  form  of  the  contract  to  have  been  intended  by  both  parties  to  be 
warranties,  to  be  strictly  and  literally  complied  with,  are  to  be  con- 
strued as  representations,  as  to  which  substantial  truth  in  everything 
material  to  the  risk  is  all  that  is  required  of  the  applicant.  Moulor 
V.  Insurance  Co.,  iii  U.  S,  335,  4  Sup.  Ct.  466;  Campbell  v.  Insurafice 
Co.,  98   Mass.  381;    Thompson  v.   IVeems,  9  App.  Cas.  671. 

The  misrepresentation  or  concealment  by  the  assured  of  any 
material  fact  entitles  the  insurers  to  avoid  the  policy.  But  the 
parties  may  by  their  contract  make  material  a  fact  that  would  other- 
wise be  immaterial,  or  m  ike  immaterial  a  fact  that  would  otherwise 
be  material.  Whether  there  is  other  insurance  on  the  same  subject, 
and  whether  such  insurance  has  been  applied  for  and  refused,  are 
material  facts,  at  least  when  statements  regarding  them  are  required 
by  the  insurers  as  part  of  the  basis  of  the  contract.  Carpenter  v. 
Providence  Washington  Ins.  Co.,  16  Pet.  495;  Jeffries  r.Life  Ins.  Co.., 
22  Wall.  47;  Anderson  v.  Fitzgerald,  a,  H.  L.  Cas.  484;  Macdonald 
V.  Insurance  Co.,  L.  R.  9  Q.  B.  328;  Edington  v.  Insurance  Co.,  77 
N.  Y.  564,  and  100  N.  Y.  536,  3  N.  E.  315. 

Where  an  answer  of  the  applicant  to  a  direct  question  of  the 
insurers  purports  to  be  a  complete  answer  to  the  question,  any  sub- 
stantial misstatement  or  omission  in  the  answer  avoids  a  policy 
issued  on  the  faith  of  the  application.  Cazenove  v.  Assurance 
Co.,  29  Law  J.  N.  S.  (C.  P.)  160,  affirming  s.  c,  6  C.  B.  (N  S.)  437. 
But  where  upon  the  face  of  the  application,  a  question  appears  to 
be  not  answered  at  all,  or  to  be  imperfectly  answered,  and  the 
insurers  issue  a  policy  without  further  inquiry,  they  waive  the  want 
-or  imperfection  in  the  answer,  and  render  the  omission  to  answer 
more  fully  immaterial.  Conn.  Insurance  Co.  v.  Luchs,  108  U.  S.  498, 
2  S'jp.  Ct  949:  Hall  V.  Peoples  Ins.  Co.,  6  Gray,  185;  Lorillard  his. 
Co.  V.  McCulloch,  21  Ohio  St.  176;  American  Insurance  Co.  v.  Mahofie, 
56  Miss.  180;  Carson  v.  Insurance  Co.,  43  N.  J.  Law,  300,  44  N.  J. 
Law,  210;  Lebanon  Ins.  Co.  v.  Kepler,  106  Pa.  St.  28. 

The  distinction   between   an  answer  apparently  complete,  but  \z 


REALITY    OF    CONSENT.  Ill 

facL  incomplete,  and  therefore,  untrue,  and  an  answer  manifestly 
incomplete,  and  as  such  accepted  by  the  insurers,  may  be  illustrated 
by  two  cases  of  fire  insurance,  which  are  governed  by  the  same  rules 
in  this  respect  as  cases  of  life  insurance.  If  one  applying  for  insur- 
ance upon  a  building  against  fire  is  asked  whether  the  property  is 
incumbered,  and  for  what  amount,  and  in  his  answer  discloses  one 
mortgage,  when  in  fact  there  are  two,  the  policy  issued  thereon  is 
avoided.  Tojvne  v.  Insurance  Co.,  7  Allen,  51.  But  if  to  the  same 
question  he  merely  answers  that  the  property  is  incumbered  with- 
out stating  the  amount  of  incumbrances,  the  issue  of  the  policy 
without  further  inquiry  is  a  waiver  of  the  omission  to  state  the 
amount.      Nichols  v.  Insurance  Co.,  1  Allen,  63. 

In  the  contract  before  us  the  answers  in  the  application  are 
nowhere  called  warranties,  or  made  part  of  the  contract.  In  the 
policy  those  answers  and  the  concluding  paragraph  of  the  applica- 
tion are  referred  to  only  as  "  the  declarations  or  statements  upon 
the  faith  of  which  this  policy  is  issued;"  and  in  the  concluding 
paragraph  of  the  application  the  answers  are  declared  to  be  "  fair 
and  true  answers  to  the  foregoing  questions,"  and  to  "form  the  basis 
of  the  contract  for  insurance.'  They  must,  therefore,  be  considered, 
not  as  warranties  which  are  part  of  the  contract,  but  as  representa- 
tions collateral  to  the  contract,  and  on  which  it  is  based. 

The  twenty-eighth  printed  question  in  the  application  consists  of 
four  successive  interrogatories,  as  follows:  "  Has  any  application 
been  made  to  this  or  any  other  company  for  assurance  on  the  life  of 
the  party?  If  so,  with  what  result?  What  amounts  are  now  assured 
on  the  life  of  the  party,  and  in  what  companies  ?  If  already  assured 
in  this  company,  state  the  No.  of  policy."  The  only  answer  written 
opposite  the  question  is  "$10,000,  Equitable  Life  Assurance  Soci- 
ety." The  question  being  printed  in  very  small  type,  the  answer 
is  written  in  a  single  line  midway  of  the  opposite  space,  evidently 
in  order  to  prevent  the  ends  of  the  letters  from  extending  above  or 
below  that  space;  and  its  position  with  regard  to  that  space,  and  to 
the  several  interrogatories  combined  in  the  question,  does  not 
appear  to  us  to  have  any  bearing  upon  the  construction  and  effect 
of  the  answer.  But  the  four  interrogatories  grouped  togther  in  one 
question,  and  all  relating  to  the  subject  of  other  insurance,  would 
naturally  be  understood  as  all  tending  to  one  object,  — the  ascer- 
taining of  the  amount  of  such  insurance.  The  answer  in  its  form 
is  responsive,  not  to  the  first  and  second  interrogatories,  but  to  the 
third  interrogatory  only,  and  fully  and  truly  answers  that  interroga- 
tory by  stating  the  existing  amount  of  prior  insurance,  and  in  what 
company,  and  thus  renders  the  fourth  interrogatory  irrelevant.      If 


112  FORMATION   OF   THE   CONTRACT. 

the  insurers,  after  being  thus  truly  and  fully  informed  of  the  amount 
and  the  place  of  prior  insurance,  considered  it  material  to  know 
whether  any  unsuccessful  applications  had  been  made  for  additional 
insurance,  they  should  either  have  repeated  the  first  two  interroga- 
tories or  have  put  further  questions.  The  legal  effect  of  issuing  a 
policy  upon  the  answer  as  it  stood  was  to  v/aive  their  right  of 
requiring  further  answers  as  to  the  particulars  mentioned  in  the 
twenty-eighth  question,  to  determine  that  it  was  immaterial,  for  the 
purposes  of  their  contract,  whether  any  unsuccessful  applications 
had  been  made,  and  to  estop  them  to  set  up  the  omission  to  disclose 
such  applications  as  a  ground  for  avoiding  the  policy.  The  insurers, 
having  thus  conclusively  elected  to  treat  that  omission  as  immate- 
rial, could  not  afterwards  make  it  material  by  proving  that  it  was 
intentional. 

The  case  oi London  Assurance  v.  Mansel,  ii  Ch.  Div.  363,  on  which 
the  insurers  relied  at  the  argument,  did  not  arise  on  a  question 
including  several  interrogatories  as  to  whether  another  application 
had  been  made,  and  with  what  result,  and  the  amount  of  existing 
insurance,  and  in  what  company.  Bat  the  application  or  proposal 
contained  two  separate  questions  —  the  first  whether  a  proposal  had 
been  made  at  any  other  office,  and,  if  so,  where;  the  second  whether 
it  was  accepted  at  the  ordinary  premium,  or  at  an  increased  prem- 
ium, or  declined;  and  contained  no  third  question  or  interrogatory 
as  to  the  amount  of  existing  insurance,  and  in  what  company.  The 
single  answer  to  both  questions  was,  "  Insured  now  in  two  offices 
for  $16,000,  at  ordinary  rates.  Policies  effected  last  year."  There 
being  no  specific  interrogatory  as  to  the  amount  of  existing  insur- 
ance, that  answer  could  apply  only  to  the  question  whether  a 
proposal  had  been  made,  or  to  the  question  whether  it  had  been 
accepted,  and  at  what  rates,  or  declined;  and  as  applied  to  either 
of  those  questions  it  was  in  fact,  but  not  upon  its  face,  incomplete, 
and,  therefore,  untrue.  As  applied  to  the  first  question,  it  disclosed 
only  some,  and  not  all,  of  the  proposals  which  had  in  fact  been 
made;  and,  as  applied  to  the  second  question,  it  disclosed  only  the 
proposals  which  had  been  accepted,  and  not  those  which  had  been 
declined,  though  the  question  distinctly  embraced  both.  That  case 
is  thus  clearly  distinguished  in  its  facts  from  the  case  at  bar.  So 
much  of  the  remarks  of  Sir  George  Jessel,  M.  R.,  in  delivering  judg- 
ment, as  implies  that  an  insurance  company  is  not  bound  to  look 
with  the  greatest  attention  at  the  answers  of  an  applicant  to  the 
great  number  of  questions  framed  by  the  company  or  its  agents, 
and  that  the  intentional  omission  of  the  insured  to  answer  a  question 
put  to  him  is  a  concealment  which  will  avoid  a  policy  issued  without 


REALITY    OF   COx\SENT.  II3 

further  inquiry,  can  hardly  be  reconciled  with  the  uniform  current 
of  American  decisions.  For  these  reasons,  our  conclusion  upon 
this  branch  of  the  case  is  that  there  was  no  error  of  which  the  com- 
pany had  a  right  to  complain,  either  in  the  refusals  to  rule,  or  in  the 
ruHngs  made.     *     *     * 

Day,  C.  J.,  IN  MILLER  v.  MUTUAL  BENEFIT  LIFE  INS.  CO. 
31  Ia.  216,  226.  — 1871. 

The  court  gave  the  following  instruction,  to  wit:  "  The  language 
of  the  policy  does  not  make  the  statements  contained  in  the  appli- 
cation for  it  matters  of  warranty,  but  matters  of  representation." 
The  defendant  excepted  to  this  instruction  and  assigns  the  giving 
of  it  as  error. 

A  warranty  differs  from  a  representation  in  two  essential  aspects. 
First,  a  warranty  constitutes  a  part  of  the  contract,  and  it  is  neces- 
sary that  it  should  be  exactly  and  literally  complied  with;  but  a 
representation  is  collateral  to  the  contract,  and  it  is  sufficient  if  it 
be  equitable  and  substantially  complied  with.  Second,  in  a  case  of 
a  warranty  the  burden  of  proof  is  upon  the  party  seeking  indemnity 
to  establish  a  case  in  all  respects  in  conformity  with  the  terms  under 
which  the  risk  was  assumed;  but  in  case  of  a  representation  the 
burden  is  cast  upon  the  defendant  to  set  forth  and  prove  the  col- 
lateral facts  upon  which  he  relies:  i  Phillips  on  Insurance,  §§  669, 
754,  and  Campbell  v.  New  England  Mutual  Life  Insurance  Co.,  98 
Mass  389,  390,  In  the  case  of  Daniels  v.  Hudson  River  Fire  Insur- 
ance Co.,  12  Cush.  416,  Shaw,  C  J.,  very  clearly  and  forcibly  illus- 
trated the  distinction  between  a  warranty  and  a  representation. 
He  said:  "  The  difference  "  (between  a  warranty  and  a  represen- 
tation) "  is  most  essential.  If  any  statement  of  fact,  however  unim- 
portant it  may  have  been  regarded  by  both  parties  to  the  contract 
is  a  warranty,  and  it  happens  to  be  untrue,  it  avoids  the  policy.  If 
it  be  construed  as  a  representation  and  is  untrue,  it  does  not  avoid 
the  contract  if  not  willful  or  if  not  material.  To  illustrate  this,  the 
application  in  answer  to  an  interrrogatory  is  this:  *  ashes  are  taken 
up  and  removed  in  iron  hods,'  whereas  it  should  turn  out  in  evi- 
dence that  ashes  were  taken  up  and  removed  in  copper  hods,  per- 
haps a  set  recently  purchased  and  unknown  to  the  owner.  If  this 
was  a  warranty,  the  policy  is  gone;  but  if  a  representation,  it  would 
not,  we  presume,  affect  the  policy,  because  not  willful  or  designed 
to  deceive,  but  more  especially  because  it  would  be  utterly  imma- 
terial, and  would  not  have  influenced  the  mind  of  either  party  in 
making  the  contract  or  in  fixing  its  terms."     In  the  case  of  Camp- 

LAW  OF  INSURANCE  —  8 


114  FORMATION   OF   THE   CONTRACT. 

bell  w  Ne7C>  England  .\fi/tiuil  Life  Insurance  Co.,  it  was  said,  that 
"  when  statements  or  engagements  on  the  part  of  the  insured  are 
inserted,  or  referred  to  in  the  policy  itself,  it  often  becomes  difficult 
to  determine  to  which  class  they  belong.  If  they  appear  on  the 
face  of  the  policy  they  do  not  necessarily  become  warranties.  Their 
character  will  depend  upon  the  form  of  expression  used,  the  appar- 
ent purpose  of  the  insertion,  and  sometimes  upon  the  connection  or 
relation  to  other  parts  of  the  instrument.  If  they  are  contained  in 
a  separate  paper,  referred  to  in  such  a  manner  as  to  make  it  a  part 
of  the  contract,  the  same  considerations,  of  course,  will  apply. 
*  *  *  In  considering  the  question  whether  a  statement  forming 
a  part  of  the  contract  is  a  warranty,  it  must  be  borne  in  mind,  as 
an  established  maxim,  that  warranties  are  not  to  be  created  nor 
extended  by  construction.  They  must  arise,  if  at  all,  from  the  fair 
interpretation  and  clear  intendment  of  the  words  used  by  the  par- 
ties." Citing  Daniels  v.  Hudson  River  Ins.  Co.,  12  Cush.  416,  424; 
Blood  V.  Hoiuard  Ins.  Co.,  12  Id  472;  Jefferson  Ins.  Co.  v.  Cotheal, 
7  Wend.  72;  Forbush  v.   Western  Mass.  Ins.  Co.,  4  Gray,  337,  340. 

"  The  application  is  in  itself  collateral  merely  to  the  contract  of 
insurance.  Its  statements,  whether  of  facts  or  agreements,  belong 
to  the  class  of  representations.  They  are  to  be  so  construed,  unless 
converted  into  warranties  by  force  of  a  reference  to  them  in  the 
policy,  and  a  clear  purpose  manifest  in  the  papers  thus  connected, 
that  the  whole  shall  form  one  entire  contract.  When  the  reference 
to  the  application  is  expressed  to  be  for  another  purpose,  or  when 
no  purpose  is  indicated  to  make  it  part  of  the  policy,  it  will  not  be 
so  treated."  Campbell  v.  Neiv  England  Mututal  Life  Ins.  Co.,  98 
Mass    391,  392;   Snyder  v.  Farmers'  Ins.  and  Loan  Co.,  13   Wend.  92. 

In  the  case  of  Daniels  v.  Hudson  River  Fire  Ins.  Co.,  Shaw,  C.  J., 
having  alluded  to  the  fact  that  a  warranty,  however  immaterial,  if 
untrue,  avoids  the  policy,  uses  this  language:  "Hence  it  is,  we 
suppose,  that  the  leaning  of  all  courts  is  to  hold  such  a  stipulation 
to  be  a  representation  rather  than  a  warranty  in  all  cases  whe'-e 
there  is  any  room  for  construction,  because  such  construction  will, 
in  general,  best  carry  into  effect  the  real  intent  and  purpose  which 
the  parties  have  in  view  in  making  their  contract."  And  the  learned 
Chief  Justice,  in  the  same  case,  further  said:  "  If  b.y  any  words  of 
reference  the  stipulations  in  another  instrument,  such  as  the  pro- 
posal or  application,  can  be  construed  a  warranty,  it  must  be  such 
as  makes  it  in  legal  effect  a  part  of  the  policy." 

In  th";  case  of  Campbell  v.  New  England  Mutual  Life  Ins.  Co.,  the 
defendant  insisted,  as  in  the  present  case,  that  certain  statements 
were  to  be  regarded  as  warranties,  and  the  point  decided  in  the  case 


REALITY    OF   CONSENT.  II5 

is  SO  pertinent  to  the  present  inquiry,  and  the  reasoning  is  so  clear 
and  forcible  that  we  feel  justified  in  quoting  further  from  it.  The 
court  said:  "  In  every  case  cited  in  support  of  the  defendant's 
position,  there  was  an  express  reference  in  the  policy  which  made 
t'le  application  a  part  of  the  contract.  The  one  most  relied  on,  and 
claimed  to  be  especially  applicable  to  the  facts  of  the  present  case, 
is  that  of  Miles  v.  Connecticut  Ins.  Co.,  3  Gray,  580.  In  that  case  it 
was  declared  in  the  policy  itself  to  be  '  expressly  understood  and 
agreed  to  be  the  true  intent  and  meaning  hereof,  that  if  the  pro- 
posal, answer,  and  declaration  made  by  the  assured,  and  upon  the 
faith  of  which  this  agreement  is  made,  shall  be  found  in  any  respect 
untrue,  then  and  in  such  case  this  policy  shall  be  null  and  void.' 
In  that  proposal  the  assured  declare  (among  other  things)  that  the 
answers  and  statements  therein  made  are  correct  and  true,  and 
'  agreed  that  the  answers  given  to  the  following  questions  and  the 
accompanying  statements,  and  this  declaration,  shall  be  the  basis, 
and  form  part  of  the  contract  or  policy  between  them  and  the  said 
company.'  Two  marked  features  in  that  case  distinguish  it  from 
the  present.  First,  the  clause  in  the  policy  relates  distinctly  and 
exclusively  to  the  paper  called  '  the  proposal  and  declaration.' 
Second,  when  the  two  papers  are  thus  brought  together  there  is  a 
distinct  agreement  r.ot  only  that  the  statements  are  true  and  cor- 
rect, but  that  they  are  to  form  a  part  of  the  contract.  In  the 
present  case  the  policy  contains  no  reference  to  any  application, 
nor  to  any  declaration  or  statement  in  writing,  made  or  to  be  made 
by  the  assured.  The  only  clause  in  the  policy  which  can  have  any 
bearing  upon  the  question,  when  disconnected  from  other  pro- 
visions of  a  diverse  character,  reads  as  follows,  namely:  '  Or  if 
the  statements  made  by  or  on  behalf  of,  or  with  the  knowledge  of, 
the  said  assured  to  the  company,  as  the  basis  of,  or  in  the  negotia- 
tion for,  this  contract  shall  be  found  in  any  respect  untrue,  then, 
and  in  each  of  said  cases,  this  policy  shall  be  null  and  void.'  It 
is  clear  that  this  is  not  a  reference  to  any  particular  instrument  or 
paper,  but  it  includes  any  and  all  statements,  whether  oral  or  writ- 
ten. The  defendant,  however,  contends  that  a  written  application 
having  been  made  in  this  case,  which  by  its  own  terms  declares  the 
statements  therein  contained  to  be  made  '  as  the  basis  of '  the 
insurance  applied  for,  the  policy  will  attach  to  that  application  as 
containing  the  statements  referred  to,  and  thus  constitute  an  express 
warranty.  We  are  far  from  being  ready  to  concede  that  the  refer- 
ence is  sufficiently  definite  to  warrant  the  bringing  of  the  two  papers 
together  for  the  purpose  of  giving  a  construction  to  the  contract. 
But,  even   if  the  application  may  properly  be  resorted  to  for  aid  in 


Il6  FORMATION    OV    THE    CONTRACT. 

the  construction,  it  contains  no  agreement  and  no  words  to  indicate 
that  its  statements  are  to  be  taken  as  warranties,  nor  that  they  are 
to  form  part  of  the  contract." 

In  the  case  at  bar  the  proceedings  with  reference  to  the  procur- 
ing of  the  policy  comprise  five  papers.  The  one  designated  "  A  " 
is  headed,  "  Particulars  required  from  persons  proposing  to  effect 
assurance  on  lives  in  this  company."  That  designated  "  B  "  is 
headed,  "  Questions  to  be  answered  by  the  physician  of  the  party 
applying  for  insurance."  That  designated  "C"  is  headed,  "Ques- 
tions to  be  answered  by  the  friend  of  the  party  applying  for  assur- 
ance." That  designated  "  D  "  is  headed,  "  Questions  to  be 
answered  by  the  agent,  if  the  applicant  is  not  previously  known  to 
him."  And  the  fifth  is  designated  as  follows:  "  Declaration  to  be 
made  and  signed  by  the  person  proposing  to  make  an  assurance  on 
the  life  of  another."  This  last-mentioned  paper  is  the  one  which 
appears  first  in  the  statement  of  facts,  and  is  signed,  "  Mary  L. 
Miller,  by  James  A.  Miller."  To  this  reference  is  made  in  the 
policy  as  follows:  "And  it  is  also  understood  and  agreed  by  the 
within  assured  to  be  the  true  intent  and  meaning  hereof  that  if 
the  declaration  made  by  or  for  the  assured,  and  bearing  date  the 
19th  day  of  February,  1866,  and  upon  the  faith  of  which  this  agree- 
ment IS  made,  shall  be  found  in  any  respect  untrue,  then  and  in 
such  case  this  policy  shall  be  null  and  void." 

It  is  worthy  of  note  that  the  declaration  is  referred  to  by  name, 
and  that  to  none  of  the  other  papers,  each  of  which  has  a  specific 
designation  in  the  proceedings,  is  any  reference  made  in  the  policy. 
In  this  respect  it  differs  from  the  case  of  Miles  v.  The  Connecticut 
Insurance  Co.,  before  alluded  to,  in  which  the  policy  made  direct 
reference  to  the  proposal,  answer,  and  declaration  made  by  the 
assured,  and  provided  that  if  they  were  found  in  any  respect  untrue, 
the  policy  should  be  null  and  void. 

Applying  the  principles  of  the  foregoing  decisions  to  the  present 
case  it  follows  that  the  statements  contained  in  the  declaration  can 
alone  be  regarded  as  warranties,  and  that  the  answers  of  Miller  to 
the  questions  propounded  to  him  are  mere  representations. 

If  the  instruction  of  the  Court  had  reference  to  the  answers  to 
the  printed  interrogatories,  it  was  proper.  If  it  had  reference  to 
the  declaration,  it  was  not  error  to  the  prejudice  of  appellant.  The 
only  alleged  misstatement,  of  which  complaint  is  made,  is  contained 
in  the  answer  of  Miller  to  the  questions  asked  him.  Hence  it 
becomes  quite  immaterial  what  construction  is  placed  upon  the 
statements  in  the  declaration.  As  the  Court  did  not  err  in  giving 
the    foregoing   instruction,    it   follows   that    the   fourth    instruction 


REALITY    OF   CONSENT.  I17 

asked  by  the  defendant,  embodying  a  doctrine  at  variance  with  it, 
was  properly  refused. 

In  the  case  of  Henry  Wilkinson  v.  The  Connecticut  Mutual  Life  Ins. 
Co.,  decided  at  the  December  Term,  1870,  it  was  said  that,  under 
the  terms  of  the  policy  in  that  case,  the  answers  to  the  questions 
contained  in  the  application  became  warranties.  That  action  was 
against  the  same  company  in  which  the  decision  of  Miles  v.  The 
Connecticut  Ins.  Co.,  3  Gray,  580,  was  rendered,  the  policies  of  which, 
as  we  have  seen,  contain  provisions  differing  widely  from  those  now 
under  consideration. 

III.  The  Court  further  instructed  the  jury  as  follows:  "  It  is  for 
you  to  determine  the  materiality  of  the  alleged  misstatements,  if 
any  have  been  proven."  This  instruction  we  consider  erroneous. 
The  only  misstatements  complained  of  are  the  answers  of  Miller  to 
the  following  questions,  to  wit:  "  Is  the  party  sober  and  temperate?  " 
"  Has  he  always  been  so?  "  A  misrepresentation  by  one  party  of  a 
fact  specifically  inquired  about  by  the  other,  though  not  material, 
will  have  the  same  effect  in  exonerating  the  latter  from  the  contract 
as  if  the  fact  had  been  material,  since,  by  making  such  inquiry,  he 
implies  that  he  considers  it  so.  In  all  jurisprudence  this  distinction 
is  recognized.  It  is  partcularly  applicable  to  written  answers  to 
written  inquiries,  referred  to  in  a  policy.  The  rule  is  so  because 
a  party,  in  making  a  contract,  has  a  right  to  the  advantage  of  his 
own  judgment  of  what  is  material,  and  if,  by  making  specific  inquiry, 
he  implies  that  he  considers  a  fact  to  be  so,  the  other  party  is  bound 
by  it  as  such,  i  Phil,  on  Ins.  §  342,  and  cases  cited;  also,  Campbell 
V.  Neiii  England  Mutual  Life  Insurance  Co.,  98  Mass.  401.  Repre- 
sentations of  this  kind  differ  from  warranties  in  that  a  substantial 
compliance  with  them  is  sufficient  to  answer  their  terms.  Whether 
there  has  been  such  substantial  compliance  —  that  is,  whether  the 
representation  is  in  every  material  respect  true,  is  a  question  of 
fact  for  the  jury.  But  it  is  not  for  the  jury  to  say  that  the  repre- 
sentation, though  substantially  untrue,  is,  notwithstanding,  imma- 
terial. An  illustration  will  make  plain  the  view  of  the  Court.  Sup- 
pose that  in  answer  to  a  specific  question  the  assured  states  that  his 
age  is  thirty  years.  It  appears  from  the  evidence  that  his  age  is  a 
week  or  a  month  greater.  The  question  would  be  a  proper  one  for 
the  jury  to  say  whether  the  representation,  though  strictly  and 
technically  untrue,  was  not  substantially  and  materially  true.  But 
suppose  it  appears  from  the  evidence  that  the  age  of  the  assured  is 
fifty  instead  of  thirty  years.  It  is  not  the  province  of  the  jury  to 
say  that  the  representation,  though  untrue,  is  immaterial  As  is 
well  said  in  the  case  of  Campbell  v.  Neiu  England  Mutual  Life  Insu 


Il8  FORMATION   OF   THE   CONTRACT. 

ance  Co.,  it  is  not  within  the  province  of  the  jury,  under  the  guise  of 
determining  whether  the  statements  of  the  applicant  were  materially 
false  or  untrue  in  some  particulars  material  to  the  risk,  to  find  that 
diseases  and  infirmities  were  not  material  to  be  disclosed,  which  the 
parties  had,  by  the  form  of  the  contract  of  insurance,  and  of  the 
contemporaneous  written  application,  conclusi  v'ely  agreed  to  con- 
sider material.  See,  also,  Davenport  v.  Neio  England  Insurance  Co., 
6  Cush.  341.  We  are  aware  that  there  are  authorities  which  sustain 
the  instruction  of  the  Court,  but  they  seem  not  to  have  noticed  the 
distinction  here  recognized,  and  are  not,  in  our  judgment,  so  much 
in  accord  with  sound  legal  principles  as  those  which  support  the 
converse  doctrine.     *     *     *  > 


2.   Promissory  Representations. 

Gray,  J.,  ix   KIMBALL  v.  ^TNA  INSURANCE  CO. 

9  Allen,  540,  541.  —  1865. 

The  contract  of  insurance  is  a  contract  to  indemnify  the  owner 
of  certain  property  against  certain  risks.  This  contract  is  founded 
upon  the  representations  previously  made  by  the  assured  to  the 
insurer.  The  condition  and  circumstances  of  the  property  are 
within  the  knowledge  of  the  owner  more  than  of  the  insurer,  and 
must  be  truly  represented  by  the  former  to  the  latter,  in  order  that 
he  may  estimate  the  risk  before  entering  into  the  contract.  In 
making  this  representation,  the  utmost  good  faith  is  required  If 
an  existing  fact  material  to  the  risk  is  misrepresented  by  the  owner 
to  the  underwriter,  the  minds  of  the  parties  never  meet,  they  agree 
on  no  subject-matter  to  \vhich  the  contract  can  attach,  the  contract 

'  "  It  is,  however,  generally  true,  that  where  the  application  is  expressly 
declared  to  be  a  part  of  the  policy, >  and  the  statements  therein  contained  are 
warranted  to  be  true,  as  was  the  case  here,  such  statements  will  be  deemed 
material  whether  they  are  so  or  not  and  if  shown  to  be  false,  there  can  be  no 
recovery  on  the  policy,  however  innocently  made,  and  notwithstanding  their 
falsity  may  have  no  agency  in  causing  the  loss  or  producing  the  death  of  the 
assured.  Ripley  v.  .^tna  Ins.  Co.,  30  N.  Y.  136;  0' Niel  v.  Buffalo  Fire  Ins.  Co., 
3  Id.  122;  Barteau  v.  Phosnix  Mutual  Life  Ins.  Co.,  67  Id.  595.  While  this  is 
true  as  a  general  rule,  still  there  are  cases  to  be  found  in  which  the  statements 
in  the  application  have  been  held  to  be  representations,  merely,  notwithstand- 
ing they  were  expressly  declared  to  be  warranties,  a?  they  are  here."  [Citing 
Fitch  V.  Ins.  Co.,  59  N.  Y.  557.]  —  Continental  Life  Ins.  Co.  v.  Rooers,  119  III. 
474,  482.  See  also  Kettenbach  v.  Assoc.,  49  Neb.  842  (reported  herein  at  p.  252), 
where  statements  stipulated  in  the  policy  to  be  "  warranties"  were  held  lo  be 
representations. 


REALITY   OF   CONSENT.  I  19 

founded  on  such  misrepresentation  never  talces  effect,  the  under- 
writer may  treat  it  as  a  nullity,  and  the  other  party,  unless  charge- 
able with  fraud,  may  recover  back  the  premium.  If  representa- 
tions, whether  oral  or  written,  concerning  facts  existing  when  the 
policy  is  signed,  are  false,  it  never  has  any  existence  as  a  contract, 
urless  it  contains  in  itself  terms  which  expressly  or  by  necessary 
implication  waive  or  supersede  the  previous  representations.  If 
the  representations  are  positive  and  not  of  mere  opinion  or  belief, 
it  matters  not  whether  they  are  made  at  or  before  the  tihie  of  the 
execution  of  the  policy,  nor  whether  they  are  expressed  in  the 
present  or  the  future  tense,  if  they  relate  to  what  the  state  of  facts 
is  or  will  be  when  the  policy  is  executed  and  the  ri?k  of  the  under- 
writer begins.  If  the  facts  are  then  materially  different  from  t'm 
representations,  the  whole  foundation  of  the  contract  fails,  the  risk 
does  not  attach,  the  policy  never  becomes  a  contract  between  the 
parties.  Representations  of  facts  existing  at  the  time  of  the  exe- 
cution of  the  policy  need  not  be  inserted  in  it;  for  they  are  not 
necessary  parts  of  it,  but,  as  is  sometimes  said,  collateral  to  it. 
They  are  its  foundation,  and  if  the  foundation  does  not  exist,  the 
superstructure  does  not  arise.  Falsehood  in  such  representations 
is  not  shown  to  vary  or  add  to  the  contract,  or  to  terminate  a  con- 
tract which  has  once  been  made;  but  to  show  that  no  contract  has 
ever  existed. 

The  word  "  representations  "  has  not  always  been  confined  in  use 
to  representations  of  facts  existing  at  the  time  of  making  the  policy: 
but  has  been  sometimes  extended  to  statements  made  by  the  assured 
concerning  what  is  to  happen  during  the  term  of  the  insurance; '  in 
other  words,  not  to  the  present,  but  to  the  future;  not  to  facts 
which  any  human  being  knows  or  can  know,  but  to  matters  of 
expectation  or  belief,  or  of  promise  and  contract.  Such  statements 
(when  not  expressed  in  the  form  of  a  distinct  and  explicit  warranty 
which  must  be  strictly  complied  with)  are  sometimes  called  "prom- 
issory representations,"  to  distinguish  them  from  those  relating  to 
facts,  or  "  afifirmative  representations."  And  these  words  express 
the  distinction;  the  one  is  an  afifirmation  of  a  fact  existing  when  the 
contract  begins;  the  other  is  a  promise  to  be  performed  after  the 
contract  has  come  into  existence.  Falsehood  in  the  afifirmation 
prevents  the  contract  from  ever  having  any  life;  breach  of  the 
promise  could  only  bring  it  to  a  premature  end.  A  promissory 
representation  may  be  inserted  in  the  policy  itself;  or  it  may  be  in 


'  In  the  present  case,  plaintiff  had  procured  the  policies  upon  the  representa- 
tion that  the  house  would  be  occupied. 


120  FORMATION   OF   THE   CONTRACT. 

the  form  of  a  written  application  for  insurance,  referred  to  in  the 
policy  in  such  a  manner  as  to  make  it  in  law  a  part  thereof;  aid  in 
either  case  the  whole  instrument  must  be  construed  together.  But 
this  written  instrument  is  the  expression,  and  the  only  evidence,  of 
the  duties,  obligations,  and  premises  to  be  performed  by  each  party 
while  the  insurance  continues.  To  make  the  continuance  or  termi- 
nation of  a  written  contract,  which  has  once  taken  effect,  dependent 
on  the  performance  or  breach  of  an  earlier  oral  agreement,  would  be 
to  violate  a  fundamental  rule  of  evidence.  A  representation  that  a 
fact  now  exists  may  be  either  oral  or  written;  for  if  it  does  not 
exist,  there  is  nothing  to  which  the  contract  can  apply.  But  an 
oral  representation  as  to  a  future  fact,  honestly  made,  can  have  no 
effect;  for  if  it  is  .a  mere  statement  of  an  expectation,  subsequent 
disappointment  will  not  prove  that  it  was  untrue;  and  if  it  is  a 
promise  that  a  certain  state  of  facts  shall  exist  or  continue  during 
the  term  of  the  policy,  it  ought  to  be  embodied  in  the  written 
contract.' 


3.  Statutory  Enactments  as  to  Representations  and 
Warranties. 

Taft,  J.,  IN  PENN  MUTUAL  LIFE  INSURANCE  CO.  v. 
MECHANICS'  SAVINGS  BANK. 

37  U.  S.  Ai'P.  692,  703,  (72  Fed.  413,  418).  —  1896. 

There  can  be  no  doubt  that  this  policy  is  to  be  construed 
according  to  the  law  of  Pennsylvania.  It  is  expressly  provided  in 
the  application,  which  is  made  part  of  the  policy,  that  "  the  place 
of  contract  shall  be  the  city  of  Philadelphia,  State  of  Pennsylvania." 

'  In  Benham  v.  Assurance  Co.,  7  Exch.  744,  a  case  of  guaranty  insurance,  the 
written  application,  which  was  referred  to  in  the  policy  as  being  the  basis  for 
the  contract,  contained  the  following  question:  State  "  the  checks  which  will 
be  used  to  secure  accuracy  in  his  accounts,  and  when  and  how  often  they  will 
be  balanced  and  closed?"  The  answer  was:  "  Examined  by  finance  commit- 
tee every  fortnight."  The  opinion  of  Pollock,  C.  B.,  was  as  follows:  "  The 
manner  in  which  this  question  is  put,  the  other  quesiions  with  which  it  is 
associated,  and  the  decisions  upon  policies  of  insurance,  lead  me  to  the  conclu- 
sion that  the  answer  was  not  expected  to  be  upon  the  part  of  the  office,  or 
meant  to  be  on  the  part  of  the  plaintifT,  anything  more  than  a  declaration  of 
the  (  ourse  intended  to  be  pursued;  and  if  that  answer  was  made  dona  fide  and 
honestly,  it  does  not  prevent  the  plaintiff  from  maintaining  this  action."  The 
other  Barons  concurred. 

For  a  discussion  and  criticism  of  ihe  view  that  a  distinction  is  to  be  made 
between  affirmative  and  promissory  representations,  see  Biddle  on  Insurance, 
§§  533-555- 


REALITY    OF   CONSENT.  121 

In  U'ayinan  v.  Sout/iard,  lo  Wheat,  i,  48,  Chief  Justice  Marshall 
stated  it  to  be  a  principle  of  universal  law  that  "  in  every  forum  a 
contract  is  governed  bythe  law  with  a  view  to  which  it  is  made." 
See  Pritchard  V.  Norton^  106  U.  S.  124,  136,  i  Sup.  Ct.  102,  and  cases 
there  cited.  In  this  case  no  necessity  exists  for  presumption  from 
the  circumstances,  because  the  intention  of  the  parties  is  express. 

An  act  of  the  Legislature  of  Pennsylvania,  passed  June  23,  1885, 
pro^'ides  that: 

"  Whenever  the  application  for  a  policy  of  life  insurance  contains 
a  clause  of  warranty  of  the  truth  of  the  answers  therein  contained, 
no  misrepresentation  or  untrue  statement  in  such  application,  made  in 
good  faith  by  the  applicant  shall  effect  a  forfeiture  or  be  a  ground 
of  defense  in  any  suit  brought  upon  any  policy  of  insurance  issued 
upon  the  faith  of  such  application  unless  such  misrepresentation  or 
untrue  statement  relate  to  some  matter  material  to  the  rjsk."  Laws 
of  1885,  p.  134,  No.  loi. 

At  common  law  it  is  held  that  the  warranty  of  the  truth  of  the 
answer  to  a  specific  inquiry  in  the  application  implies  the  agreement 
that  the  subject-matter  of  the  question  and  answer  is  to  be  regarded 
as  material,  and  that  an  untrue  answer  thus  Wdrranted  avoids  the 
policy,  whether  the  answer  be  made  in  good  faith  or  not.  Anderson 
v.  Fitzgerald^  4  H.  L.  Cas.  484.  It  is  contended  by  counsel  for  the 
insurance  company  that  the  same  mode  of  determining  the  materi- 
ality of  representations  must  obtain  under  this  statute.  If  so,  then 
it  is  difficult  to  see  what  change  the  statute  was  intended  to  effect, 
because  every  matter  warranted  would  be  material,  and  the  good 
faith  in  the  statement  would  remain  of  as  little  importance  as  it  did 
without  the  statute.  This  is  one  of  a  class  of  statutes  passed  in 
many  States  to  relieve  against  the  hardships  arising  from  the  strict 
enforcement  at  common  law  of  warranties  in  insurance  policies  con- 
cerning matters  having  no  real  or  proximate  relation  to  the  risk 
assumed  by  the  insurer.  By  the  aid  of  such  warranties,  and  the 
innocent  mistakes  of  the  insured,  it  often  happened  that  the  instrer 
was  able  to  escape  liability  on  a  ground  having  no  real  merit,  and 
of  the  purest  technicality.  That  such  statutes  are  remedial  in  their 
nature,  and  are  quite  within  the  police  power  of  the  Legislature,  is 
no  longer  a  debatable  question.  White  v.  Insurance  Co.,  4  Dill.  177, 
Fed.  Cas.  No.  17,545;  Society  v.  Clements,  140  U.  S.  226,  11  Sup.  Ct- 
822;  Wall  V.  Assurance  Soc,  32  Fed.  273;  Eagle  Ins.  Co.  of  Cincin- 
nati v.  State,  153  U.  S.  446,  14  Sup.  Ct.  868;  Reilly  v.  Insurance  Co., 
43  Wis.  449;  Insurance  Co.  v.  Leslie,  47  Ohio  St.  409,  24  N.  E.  1072; 
4  Thomp.  Corp.  §§  5491,  5524.  As  the  statute  was  passed  to  pre- 
vent defeat  of  the   policy  by  mere  stringency  of  stipulation,  a  rea- 


122  FORMATION    OF   THE    CONTRACT, 

sonable  interpretation  of  it  will  not  permit  the  mere  fact  of  warranty 
in  form  to  render  every  statement  of  fact  material  to  the  risk.  Its 
manifest  purpose  was  to  leave  open  to  judicial  investigation  in  the 
ordinary  way  the  question  whether  the  fact  concerning  which 
inquiry  was  made,  and  an  untrue  answer  given,  v^as  material  to  the 
risk.  If  it  is  in  this  manner  found  to  be  material,  then  the  plain 
implication  of  the  statue  is  that  the  usual  penalty  for  breach  of 
insurance  condition  and  warranty  shall  follow,  and  the  policy  I)e 
avoided,  whether  the  answer  be  made  in  good  faith  or  not.  If, 
however,  the  question  untruly  answered  relates  to  something  not 
found  to  be  material  to  the  risk,  and  if  the  answer  is  in  good  faith, 
then  the  breach  of  warranty  works  no  prejudice  to  the  insured  or  his 
representatives.  If,  though  the  question  untruly  answered  relates 
to  something  not  directly  material  to  the  risk,  the  untrue  answer  is 
made  in  bad.  faith  — that  is,  with  a  knowledge  of  its  falsity,  and  for 
the  purpose  of  misleading  the  company  into  the  contract — the 
implication  of  the  statue  is  that  the  rule  at  common  law  shall  pre- 
vail, and  the  policy  shall  be  avoided.  The  statute  has  been  con- 
strued by  the  Supreme  Court  of  Pennsylvania,  and  we  think  our 
conclusions  above  stated  are  in  accordance  with  the  view's  of  that 
court.  Hermany  v.  Association^  151  Pa.  St  17,  24  Atl.  1064.  In  th^t 
case  the  court  say  (page  23),  151   Pa.  St.,  and  page  1064,  24  Atl.: 

"  This  act  has  effected  a  change  in  life  insurance  contracts  —  a 
much-needed  change  so  far  as  some  companies  are  concerned.  The 
questions  of  materiality  and  good  faith  are  ordinarily  questions  of 
fact,  and,  therefore,  for  the  jury.  They  were  certainly  so  in  this 
case.  *  *  *  The  evident  purpose  of  this  legislation  was  to  strike 
down,  in  this  class  of  cases,  literal  warranties,  so  far  as  they  may 
be  resorted  to  for  the  disreputable  purpose  of  enforcing  actually 
immaterial  matters.  It  provides  a  rule  of  construction  for  the  pur- 
pose of  preventing  injustice,  and  it  is  as  much  the  duty  of  courts 
to  enforce  such  rules  as  it  is  to  administer  the  statute  of  frauds  and 
perjuries." 

The  construction  of  a  State  statute  by  the  highest  court  of  the 
State  is  usually  authoritative  in  courts  of  the  United  States.  Bur- 
gess V.  Selig??ian,  107  U.  S.  20,  2  Sup.  Ct.  10.  And,  even  if  it  were 
otherwise,  we  should  reach  the  same  conclusion  in  this  case.  The 
Court  of  Appeals  of  Maryland  has  had  occasion  to  construe  this 
same  statute,  and  has  given  it  a  like  interpretation.  Association  v. 
Ficklin,  74  Md.  172,  21  Atl.  680,  and  23  Atl.  197.      *     *     *  > 

'Some  other  States  hai^e  similar  statutes.  See  especially  the  discussion  of 
the  Massachusetts  statute  in  White  v.  Soc,  163  Mass.  108. 


REALITY   OF   CONSENT.  1 23 

4.   Effect  of   Misrepresentation. 

WALLER  V.  THE  NORTHERN  ASSURANCE  CO. 

64  Ia.  101.  —  1S84. 

These  are  actions  at  law  to  recover  for  money  paid  as  premiums 
upon  certain  policies  of  insurance  successively  issued  to  plaintiff, 
the  last  one  being  held  void,  in  an  action  thereon  to  recover  for  a 
loss,  on  the  ground  that  the  assured  held  but  a  mortgage  interest 
in  the  property  insured,  while  the  policy  was  issued  to  him  as  the 
absolute  owner. 

Beck,  J.  *  *  *  H.  A  condition  of  the  policy  provides  that, 
"  if  the  interest  of  the  assured  in  the  property  be  any  other  than 
entire,  unconditional  and  sole  ownership  of  the  property,  for  the 
use  and  benefit  of  the  assured,  *  *  *  j^  must  be  so  represented 
to  these  companies,  and  so  expressed  in  the  written  part  of  this 
policy,  otherwise  the  policy  shall  be  void."  Under  this  condition, 
each  of  the  policies  was  absolutely  void,  and  incapable  of  binding 
or  being  enforced  against  defendants.  And,  in  an  action  upon 
the  one  last  issued,  its  invalidity  was  pleaded  by  defendants  and 
adjudicated  by  the  court.  As  the  other  policies  in  no  respect  differ 
as  to  their  conditions,  or  the  facts  pertaining  to  each  contract,  upon 
which  its  validity  depends,  each  is  in  fact  invalid  by  law,  and  defend- 
ants cannot  now  be  heard  to  deny  its  invalidity.  We  can  discover 
no  ground  upon  which  to  base  a  distinction  as  to  the  rights  of 
plaintiff  under  the  several  policies  and  growing  out  of  the  sev- 
eral transactions.  Each  presents  the  case  of  a  payment  of  money 
by  plaintiff,  and  a  failure  to  receive  any  consideration  therefor, 
without  any  fraud  or  deception  practiced  by  him.  It  is  a  simple  case 
of  money  paid  in  good  faith,  and  nothing  in  return  received.  No 
element  of  fraud  exists  which  defeats  plaintiff's  rights.  Nor  is  it  a 
case  of  voluntary  payment,  for  it  was  made  with  the  expectation  of 
receiving  a  consideration  in  return,  which  has  wholly  failed,  for  the 
reason  that  the  policy  did  not  bind  defendants.  Under  familiar 
rules  of  law,  plaintiff  is  entitled  to  recover  the  amount  of  the  prem- 
iums paid  as  money  had  and  received  to  his  use.  This  doctrine  has 
often  been  recognized  by  the  authorities  as  applicable  in  actions  for 
the  recovery  of  money  paid  as  premiums  upon  policies  when  the  risk 
did  not  attach,  or  the  contract  was  void  ab  initio.     *     *     *  ' 

•See  also  the  first  paragraph  of  Kimball  v.  Ins.  Co.  as  given  ante,  p.  118. 


124  FORMATION    Oi"    lili:    Lu.n  1  RACT. 

5.  Burden  of  Proof. 

Mitchell,  J.,  in  CHAMBERS  v.  NORTHWESTERN  MUTUAL 

LIFE  INS.  CO. 

64  Minn.  495,  497.  —  1S96. 

2.  The  next  question  is,  was  tlie  burden  on  the  plaintiff  to  allege 
and  prove  the  truth  of  the  answers  to  the  questions  contained  in 
the  application,  or  was  it  upon  the  defendant  to  allege  and  prove 
their  falsits'?  Defendant's  contention  is,  that  because,  if  any  of 
these  answers  were  false,  the  policy  would  be  void  ab  initio,  there- 
fore they  were  conditions  precedent,  and  hence,  according  to  a 
familiar  rule,  the  burden  was  on  the  plaintiff  to  allege  and  prove 
that  they  were  true.  The  law  is  so  well  settled  otherwise  that  it 
would  hardly  seem    to  require  discussion. 

For  the  purposes  of  this  case  it  is  immaterial  whether  these 
answers  are  to  be  deemed  warranties  or  mere  representations,  for  the 
rule  of  pleading  and  proof  would  be  the  same  in  either  case. 
Hence  we  shall  assume,  most  favorably  to  the  defendant,  that  the 
answers  are  warranties.  A  condition  precedent,  as  known  in  the 
law.  is  one  which  is  to  be  performed  before  the  agreement  of 
the  parties  becomes  operative  A  condition  precedent  calls  for  the 
performance  of  some  act  or  the  happening  of  some  event  after  the 
contract  is  entered  into,  and  upon  the  performance  or  happening 
of  which  its  obligation  is  made  to  depend.  In  the  case  of  a  mere 
warranty,  the  contract  takes  effect  and  becomes  operative  immedi- 
ately. It  is  true  that,  where  a  policy  of  insurance  so  provides,  if 
there  is  a  breach  of  a  warranty,  the  policy  is  void  ab  initio.  But 
this  does  not  change  the  warranty  into  a  condition  precedent,  as 
understood  in  the  law.  It  lacks  the  essential  element  of  a  condition 
precedent,  in  that  it  contains  no  stipulation  that  an  event  shall 
happen  or  an  act  shall  be  performed  in  the  future,  before  the  policy 
shall  become  effectual.  It  is  more  in  the  nature  of  a  defeasance, 
where  the  insured  contracts  that,  if  the  representations  made  by 
him  are  not  true,  the  policy  shall  be  defeated  and  avoided.  But, 
even  if  these  warranties  are  to  be  deemed  conditions  precedent,  it 
has  become  settled  in  insurance  law,  for  practical  reasons,  that  the 
burden  is  on  the  insurer  to  plead  and  prove  the  breach  of  the 
warranties. 

Not  only  so,  but  he  must,  in  his  pleading,  single  out  the  answers 
whose  truth  he  proposes  to  contest,  and  show  the  facts  on  which 
his  contention  is  founded.  Otherwise,  the  insured  would  enter  the 
trial  ignorant  as  to  which  of  his  numerous  answers  would  be  assailed 
as  false.     The  number  of  questions  in  these  applications  is  usually 


REALITY   OF   CONSENT.  125 

very  great,  relating  to  the  haoits  and  health  of  ancestors,  the  per- 
sona! habits  and  condition  of  the  applicant,  etc.,  the  truth  of  many 
of  which  it  would  be  impossible  to  prove  affirmatively  after  the  death 
of  the  insured.  To  require  such  proof  on  part  of  the  beneficiary 
would  defeat  more  than  half  of  the  life  policies  ever  issued.  On 
the  other  hand,  it  is  no  hardship  to  require  of  the  insurer,  if  he 
believes  that  any  of  these  answers  were  false,  that  he  specifically 
allege  which  ones  he  claims  to  be  false,  and  produce  evidence  of 
the  truth  of  his  claim.  It  would  be  superfluous  to  cite  authorities 
on  this  subject;  but  to  the  point  that  these  warranties  are  not  con- 
ditions precedent,  in  the  legal  sense  of  the  term,  we  refer  to  Redman 
V.  Itisurance  Co.,  49  Wis.  431,  4  N.  \V.  ^91 ;  and,  for  a  forcible  state- 
ment of  the  practical  reasons  for  the  rule,  to  Insurance  Co.  v.  Etuing, 
92  U.  S.  377.  The  dictum  in  Price  v.  Insurance  Co.,  17  Minn.  497 
(Gil.  473I,  that  warranties  are  conditions  precedent,  the  truth  of 
which  must  be  pleaded  and  proved  by  the  assured,  was,  we  think, 
inadvertent,  and  cannot  be  adhered  to.  We,  therefore,  hold  that  it 
was  no  part  of  plaintiff's  case  to  either  allege  or  prove  the  truth  of 
the  answers  in  the  application,  that  the  burden  of  alleging  and  prov- 
ing their  falsity  was  on  the  defendant,  that  it  was  bound  to  specify 
in  its  defense  the  particular  answers  which  it  claimed  were  false, 
and  that  on  the  trial  it  was  properly  limited  in  its  proof  to  those 
answers  which  it  had  specifically  alleged  to  be  false.' 

'  "  The  policy  with  the  condilions  annexed  constitute  an  entire  contract,  and 
in  declaring  upon  the  contract,  it,  or  a  sufficient  portion  of  it  to  show  a  right  of 
recovery,  must  be  set  out  either  in  terms  or  in  substance.  This  is  not  like  suing 
on  a  penal  bond  at  common  law,  where  the  plaintiff  might  simply  count  on  the 
bond  and  leave  the  defendant  to  set  up  the  condition  and  plead  performance. 
But  in  a  case  of  this  character,  the  money  only  being  payable  upon  the  assured 
performing  certain  acts,  all  such  precedent  acts  should  be  set  out  and  iheir  per- 
formance averred.  But  all  conditions  subsequent  to  the  right  of  recovery,  and 
all  acts  to  be  done  by  the  company  in  discharge  of  their  liability,  may  be  omitted 
and  left  to  be  set  up  as  a  defense." — Rockford  Ins.  Co.  v.  Nelson^  65  III.  415,  418. 

"  The  position  of  the  appellant,  that  the  plaintiff  was  bound,  in  the  first 
instance,  to  prove  that  he  did  not  keep  or  use  more  than  the  specified  quantity 
of  benzine,  is  not  tenatle.  In  an  action  on  a  policy  of  insurance,  the  allega- 
tion in  the  complaint,  under  section  533  of  the  Code  of  Civil  Procedure,  that  the 
plaintiff  has  duly  performed  all  the  conditions  of  the  contract  on  his  part,  does 
not  require  him  to  prove,  as  a  part  of  his  affirmative  case,  that  he  has  not  com- 
mitted any  of  the  acts  which  the  policy  prohibits.  Proof  to  this  effect  need  not 
be  offered  by  him  until  some  evidence  of  a  violation  of  the  prohibition  has  been 
given  by  the  defense.  Huntv.  Hudson  River  Fire  Ins.  Co.,  2  Duer,  481, 489;  Fischer 
v.  Metropolitan  Life  Ins.  Co.,  37  App.  Div.  575,  582;  Bennett  v.  Maryland  Fire  Ins. 
Co.,  14  Blatchf.  422;  and  see  Blasingame  v.  Home  Ins.  Co.,  75  Cal.  633." — Ran  v. 
Ins.  Co.,  50  App.  D.  (N.  Y.)  428.  See  the  comprehensive  article  upon  "Deciara 
tions  on  Insurance  Policies,"  by  Adelbert   Hamilton,  in  28  Cent.  Law  Jour.  2. 


126  FORMATION    OK   THE   CONTRACT. 

c.  Mistake. 

HOME  INSURANCE  COMPANY  v.  MYER. 

93  III.  271.  —  1879. 

Mr.  Justice  Scholfield.  —  This  was  a  bill  in  equity,  by  appellee 
against  appellant  to  rectify  a  mistake  in  a  policy  of  insurance  on  a 
stock  of  goods  and  fixtures,  and  to  enforce  payment  on  the  policy, 
when  rectified,  for  loss. 

The  alleged  mistake  was  in  the  description  of  the  house  in  which 
were  the  stock  of  goods  and  fixtures.  The  policy  describes  the 
house  as  No.  57  Milwaukee  avenue,  Chicago,  whereas  it  is  alleged, 
the  intention  was  it  should  have  described  it  as  No.  59  Milwaukee 
avenue,  Chicago. 

The  mistake  is  denied  in  the  answer,  and  it  is  also  therein  alleged 
that  there  was  no  intention  to  insure  any  property  at  No.  59  Mil- 
waukee avenue.  The  evidence  leaves  no  reasonable  doubt  that  the 
mistake  was  made  as  alleged  in  the  bill.  Appellee  is  clearly  shown 
to  have  no  interest  in  the  house,  or  its  contents  —  No.  57  Milwau- 
kee avenue.  And  it  is  also  clearly  shown  that  he  did  business  at 
No.  59  Milwaukee  avenue.  Appellee  swears  that  he  applied  for 
insurance  on  the  stock  and  fixtures  in  No.  59.  and  that  the  appellant 
sent  a  solicitor,  who  examined  No.  59  before  the  insurance  was 
effected.  The  mistake  appears  to  have  been  mutual,  and  it  is  such 
as  is  competent  for  a  court  of  equity  to  rectify.     *     *     *  1 


VII.  Illegality. 
ERB  V.  GERMAN  AMERICAN  INSURANCE  CO. 

98  Ia   606.  —  1897. 

Granger,  J.  — On  the  226.  day  of  August,  1893,  the  defendant 
company  issued  to  the  plaintiff  its  policy  of  fire  insurance,  to  the 
amount  of  $1,200,  on  a  stock  of  drugs,  patent  medicines,  etc.,  at 
Coon  Rapids,  Iowa,  and  on  the  9th  day  of  September,  1893,  said 
stock  of  goods  was  destroyed  by  fire,  and  this  action  is  to  recover 
on  the  policy.  The  following  are  defenses  pleaded,  to  each  of  which 
the  court  sustained  a  demurrer:  "  (8)  The  defendant  says  that 
there  was  conducted,  in  the  building  described  in  the  petition,  and 
by  means  of  the  property  insured  in  said  policy,  a  pharmacy,  at  the 
time  said  insurance  was  written,  and  up  to  the  time  of  said  fire,  by 

'  See  also  AW/ v.  Iits.  Co.,  150  Pa.  523. 


ILLEGALITY.  12^ 

the  said  B.  F,  Erb,  and  that  said  B.  F.  Erb  had  no  permit  to  do 
business  as'  a  pharmacist,  and  that  his  business  was  conducted  in 
violation  of  the  laws  of  the  State  of  Iowa,  and  that  this  fact  the 
plaintiff  concealed  from  this  defendant,  at  the  time  this  insurance 
was  written,  and  at  all  times  thereafter  —  the  fact  that  he  was  con- 
ducting a  pharmacy  contrary  to  the  laws  of  the  State  of  Iowa,  and 
without  a  permit  to  conduct  such  a  pharmacy,  and  in  violation  of 
the  statutes  of  Iowa  —  vvhich  concealment  was  a  material  fact  con- 
cerning this  insurance,  and  by  the  terms  of  the  policy  renders  the 
same  void.  (9)  Defendant  further  says  that  said  Erb  was  engaged, 
at  the  place  described  in  the  petition,  and  by  means  of  the  appli- 
ances and  property  insured  in  the  policy,  in  illegally  selling  intoxi- 
cating liquors,  at  the  time  said  policy  was  written,  and  thereafter 
up  to  the  time  of  the  fire,  and  that  said  Erb  was  not  a  registered 
pharmacist,  neither  had  he  any  permit  to  sell  or  deal  in  intoxicating 
liquors,  and  these  facts  were  all  concealed  from  the  defendant,  and 
which  facts  are  each  and  all  of  them  material  facts  concerning  this 
insurance;  and  by  the  express  terms  of  this  policy  the  same  is 
rendered  void  by  such  concealment."  An  amendment  to  the  answer 
was  filed,  having  reference  to  some  particulars  of  the  defenses  in 
question;  but  it  deals  mainly  with  conclusions  of  law,  and,  as  to 
facts,  it  seems  to  add  nothing  to  the  sufficiency  of  the  defenses 
pleaded,  and  hence  it  need  not  be  set  out. 

The  proposition  for  consideration,  as  presented  by  appellant,  is: 
"  Can  there  be  a  recovery  on  an  insurance  policy  covering  articles 
of  merchandise  which  are  owned  and  kept  and  used  in  violation  of 
the  laws  of  the  State?  "  It  is  urged  that  to  permit  such  a  recovery 
would  be  against  public  policy.  The  line  of  authorities  coming  to 
our  notice,  to  aid  in  the  solution  of  the  question,  is  quite  limited. 
Those  nearest  to  sustaining  appellant's  view  are  in  Massachusetts. 
In  Kelly  v.  Insurance  Co,  97  Mass.  284,  the  msurance  was  on  a 
building  that,  in  violation  of  the  conditions  of  the  policy  that  the 
building  should  not  be  occupied  or  used  for  unlawful  purposes,  was 
used  for  gambling,  in  violation  of  law,  which  avoided  the  policy. 
The  case  seems  to  have  no  bearing  on  the  facts  of  this  case.  Kelly 
V.  Insurance  Co.,  Id.  288,  is  a  case  in  which  the  insurance  was  on  a 
stock  of  liquors  kept  by  the  assured  for  sale  in  violation  of  law. 
The  policy  covered  the  liquors  and  casks  containing  them.  The 
opinion  holds  the  policy  void,  and,  speaking  of  the  assured,  it  closes 
with  the  words:  "  His  contract  was  in  contravention  of  law,  and 
void  as  to  him,  because  he  entered  into  it  in  order  to  protect  him- 
self in  his  illegal  acts."  The  case,  as  to  authority,  is  grounded  on 
holdings   in   cases   involving   marine  insurance.     In  such  cases  the 


128  FORMATION    OF   THE   CONTRACT. 

rule   is  announced   that  "  the   illegality  of   the  voyage   in  all  cases 
avoids  the  policy,  and   the  voyage  is  always  illegal  when  the  goods 
or  trade  are  prohibited,  or  the  mode  of  its  prosecution  violates  the 
provisions  of  the    statute.'"      In    Boadinan  v.  Insurance  Co.,  8  Cash. 
5S3,  it  was  sought  to  avoid  policies  of  insurance  on  a  building  and 
peisonal  property,  consisting  of  leather  and  materials  for  the  manu- 
facture of  shoes.     The  evening  before  the  fire,  persons  assembled  in 
a  room  in  the  building  and  conducted  a  lottery,  which  was  a  use  of 
the  room  for  an  unlawful  purpose.     The  rule  of  the  case  is  stated 
as  follows:     "  The  drawing  of  a  lottery,  with  the  consent  and  par- 
ticipation of  the  assured,  in  a  building  insured  against  loss  by  fire 
as  a  shoe  manufactory,  does  not  avoid  the  policy  on  the  building, 
nor  on  the  stock  therein."    In  the  opinion  is  the  following  language: 
"  The  distinction  between  cases  where  contracts  are  or  are  not 
void,  as  against  law,  is  well  stated  by  Marshall,  C.  J.,  in  Armstrong 
V.  Toler,    11  Wheat.  271.     The  principle  established  is  that,  where 
the  consideration  is  illegal,  immoral,  and  wrong,  or  where  the  direct 
purpose  of  the  contract  is  to  effect,  advance,  ur  encourage  acts  in 
violation  of  law,  it  is  void.    But,  if  the  contract  sought  to  be  enforced 
is  collateral  and   independent,  though  in  some   measure  connected 
with  acts  done  in  violation  of  law,  the  contract  is  not  void."     This 
rule  is  followed  in  Johnson  v.  Insurance  Co.,  127  Mass.  555,  in  which 
a  policy  was  held  void.      In  Insurance  Co.  v.  De  Graff,  12  Mich.  124, 
the  policy  included,  among  other   things,   groceries,   among   which 
were   liquors,  and   the   policy  was   claimed   to   be  void,  because  to 
sustain  the  policy  with  liquors  included  would  be  insuring  an  illegal 
traffic.     The  case  is  quite  in  line,  on  principle,  with  the  one  at  bar. 
The  case  briefly  treats  of  the  rule  as  to  marine  insurance,  holding  it 
to  be  inapplicable,  and,  as  suggesting  a  state  of  facts  that  would  be 
applicable,  it  is  said:     "If   this   policy  were,   in   express   terms,  a 
policy  ins\iring  the  party  selling  liquor  against  loss  by  fine  or  for- 
feiture, it  would  be  quite  analogous.     But  this  insurance  attaches 
only  to  property,  and  the  risks  insured  against  are  not  the  conse- 
quences of  illegal  acts,  but  of  accident."     In  the  opinion  it  is  fur- 
ther said:     "  By  insuring  his  property,  the  insurance  company  has 
no  concern  with  the  use  he  may  make  of  it;  and,  as  it  is  susceptible 
of  unlawful  uses,  no  one  can  be  held  to  contract  concerning  it  in  an 
illegal  manner  unless  the  contract  itself  is  for  a  directly  illegal  pur- 
pose.    Collateral  contracts,  in  which   no  illegal  design  enters,  are 
not   affected   by   an    illegal    transaction   with    which   they   may    be 
remotely  connected."     The   case    cites  Insurance  Co.  v.  Polleys,  13 
Pet.  157,  and  Armstrong  v.  Toler,  11  Wheat.  258.     It  is  there  said: 
"  It  is  difficult  to  perceive  tiow  public  policy  can  be  violated  by  an 


ILLEGALITY.  1 29 

insurance  of  any  kind  of  property  recognized  by  law  to  exist."  In 
Carrigan  v.  Insurance  Co.,  53  Vt.  418,  the  Massachusetts  cases  and 
the  Michigan  cases  are  noticed,  and  the  case  quotes  much  of  the 
language  we  have  quoted  from  them.  The  policy  in  that  case  cov- 
ered a  stock  in  trade  consisting  of  groceries,  provisions,  drugs, 
*  *  *  including  wines  and  liquors.  In  the  case  at  bar,  as  in 
that  one,  liquors  are  included  in  the  terms  of  the  policy.  In  that 
case  it  is  said:  "  If  the  purpose  of  the  contract  in  question  had 
been  to  protect  the  assured  in  the  sale  of  intoxicating  liquors,  it 
would  have  been  null;  but  the  greater  part  of  the  property  insured 
consisted  of  goods  insurance  upon  which  was  subject  to  no  objec- 
tion. The  contract  was  legal  on  its  face,  nothing  appearing  to 
show  that  the  wines  and  liquors  were  intended  for  illegal  sale;  and 
it  is  a  fact,  not  needing  proof,  that  in  compounding  medicines, 
liquors,  especially  wines  and  alcohol,  are  of  daily  use,  and  for  that 
purpose  their  possession  and  use  by  druggists  are  legitimate.  The 
assured  was  a  dealer  in  drugs  and  medicines,  and  in  that  respect 
legitimately  and  presumably  using  liquors.  There  was  evidence 
tending  to  show  that  he  legally  sold  them,  including  those  not  used 
in  compounding  medicines;  and  the  fact  may  have  been  that  the 
latter  trade  was  the  larger  and  the  main  one.  If  such  illegal  traffic 
was  the  business  of  the  assured,  and  his  legal  traffic  and  transactions 
with  other  property  a  mere  cover,  ostensibly  carried  on  for  the 
purpose  of  enabling  him  to  secretly  disguise  his  iniquity,  the  pur- 
pose of  the  contract  would  be  to  protect  him  in  illegal  ventures,  and 
it  would  therefore,  be  void;  but  if  he  carried  on  business,  using 
alcoholic  liquors  legitimately  in  his  drug  trade,  and  occasionally 
sold  them  in  violation  of  law,  we  think  that,  if  no  legal  design 
entered  into  the  making  of  the  contract  in  its  inception,  that  it 
would  be  so  far  collateral  to  the  illegal  acts  that  it  would  be  incon- 
sistent, and  in  accordance  with  no  well-adjudged  case,  to  hold  it 
null."  The  case  of  Pollard  v.  Insurance  Co.,  63  Miss.  244,  is  deter- 
mined upon  a  statute  making  contracts  void,  and  is  of  no  force  as 
authority  in  this  case.  This  case,  in  some  respects,  differs  from 
any  we  have  noticed  or  cited;  but  we  think  the  rule  of  the  Michigan 
and  Vermont  cases  announces  the  correct  doctrine. 

The  following  is  the  property  insured,  as  stated  in  the  policy: 
"  $1,200  on  his  general  stock  of  drugs,  patent  medicines,  lamps  and 
lamp  goods,  paints,  oils,  stationery,  books,  wall  paper,  liquors, 
fancy  and  toilet  articles,  and  druggists'  sundries."  It  shows  much 
property  insured,  outside  of  liquors  and  drugs,  for  which  permits 
to  sell  must  be  obtained.  The  facts  to  bring  the  policy  within  the 
rule  to  make  it  void  are  wanting.     The  drugs  .and  the  liquors  are 

LAW  OF  INSURANCE —  O 


i^.o 


FORMATION    OF   THE   CONTRACT. 


recognized  property  in  this  State,  and  as  legitimate  subjects  of 
insurance  as  other  property.  It  is  the  illegal  use  of  them  that  gives 
rise  to  the  questions  before  us.  We  have  not  seen  a  case  in  which, 
because  of  the  mere  use  of  property  for  illegal  purposes,  not  increas- 
ing the  hazard  in  the  absence  of  stipulations  to  that  effect,  a  policy 
has  been  held  void  because  of  such  use.  It  is  not  a  case  in  which 
the  contract  itself  is  against  public  policy,  by  the  parties,  at  the 
i.iception  of  it,  intending  it  to  be  in  aid  of  purposes  or  designs  to 
violate  the  law.  This  case  simply  presents  the  question  whether, 
where  a  party  uses  property  for  an  unlawful  purpose  that  is  sus- 
ceptible of  legitimate  use,  such  use  will  render  the  insurance  con- 
tract void,  as  against  public  policy.  We  think  that  no  authority 
sustains  such  a  rule,  and  it  does  not  seem  to  be  dictated  by 
reason.     *     *     *  i 


KYTE  V.  COMMERCIAL  UNION  ASSURANCE  CO. 

149  Mass.  116. — 1889. 
\Reported  herein  at  p.   142.] 


'  See  Hatch  v.  Co.,  120  Mass.  550,  digested  herein  at  p.  309,  note. 


PART  III. 
Construction  of  the  Contract. 


WESTERN  &  ATL.    PIPE-LINES  r.  HOME  INSURANCE  CO. 

145  Pa.  346.  —  i8gr. 

Sterrett,  J.  — This  action  is  on  a  policy  of  insurance  issued  by 
the  Home  Insurance  Company,  defendant,  insuring  the  Western  & 
Atlantic  Pipe-Lines  for  one  year  from  June  28,  1888,  against  loss  or 
damage  by  fire  to  the  amount  of  $2,500,  "  on  oil  while  contained  in 
the  iron  crude-oil  tank  known  as  '  No.  i,'  on  plan  situate,  detached 
273  feet,  on  the  Johnson  farm,  at  Johnson's  Station,  on  the  line  of 
the  Washington  branch  of  the  Pittsburgh,  Cincinnati  &  St.  Louis 
Railroad,  on  leased  ground,  Washington  county.  Pa."  By  neces- 
sary implication,  the  verdict  established  the  fact  that,  during  the 
life  of  the  policy,  over  3,600  barrels  of  oil  were  destroyed  by  fire 
while  in  said  "  iron  crude  oil  tank  known  as  '  No.  i,'  "  on  the  plan 
of  oil  tanks  at  Johnson's  Station.  The  jury  found  in  favor  of  the 
plaintiff  for  the  value  of  the  oil  thus  destroyed. 

The  company  defendant,  after  being  fully  advised  as  to  the  loss, 
etc.,  denied  its  liability  on  two  grounds:  (i)  Because  the  tank 
containing  the  oil  insured  had  been  removed  "  by  an  unforeseen  dis- 
aster, in  the  shape  of  a  flood,"  and  carried  about  four  or  five  hun- 
dred feet  from  the  position  it  occupied  when  the  policy  was  issued. 
(2)  Because  the  oil  contained  in  said  tank  did  not  belong  to  the 
plaintiff  company,  but  to  its  customers,  for  whom  it  was  held  in 
storage,  which  fact  was  not  stated  on  the  face  of  the  policy. 

Concedmg  the  fact  that,  at  the  time  of  the  fire,  the  tank  had  been 
removed  by  a  flood  about  four  or  five  hundred  feet  from  the  posi 
tion  in  which  it  stood  when  the  oil  was  insured,  but  not  off 
the  premises  described  in  the  policy,  the  plaintiff  contends  that  the 
insurance  company  was  not  thereby  relieved  from  liability  for  the 
loss.  In  that  we  think  it  is  right.  The  object  of  the  contract  was 
indemnity  against  the  destruction  of  oil  described  as  "  contained  in 
the  iron  crude-oil  tank  known  as  '  No.  i,'  "  etc.  With  the  view  of 
attaining  that  object,  the  terms  of  the  policy  should  be  construed 

[131J 


132  CONSTRUCTION  OF  THE  CONTRACT. 

liberally.  If  any  doubt  exists  as  to  their  meaning,  it  should  be 
resolved  in  favor  of  insured,  rather  than  in  the  interest  of  the 
underwriter.  When  words  employed  in  a  policy  of  insurance  are  sus- 
ceptible of  two  interpretations,  that  which  will  sustain  the  claim  of 
the  insured  should  be  adopted.  Wood,  Ins.  145;  May,  Ins.  18.'. 
Tested  by  these  well-recognized  principles  of  interpretation,  the 
position  contended  for  by  the  defendant  company  is  untenable.  In 
substance,  its  position  is  that  the  above-quoted  description  of  the 
property  insured  is,  in  effect,  a  warranty  that,  in  case  of  fire,  the  oil 
destroyed  shall  not  only  be  contained  in  said  iron  tank,  but  that  the 
tank  itself  shall  remain  where  it  was  when  the  insurance  was  effected ; 
otherwise  the  insurance  company  will  not  be  liable.  Authorities 
cited  in  support  of  that  position,  where  property  insured  as  con- 
tained in  certain  barns,  houses,  etc.,  was  destroyed  after  removal 
to  other  buildings,  have  no  application  to  the  case  before  us.  In 
those  cases  there  was  necessarily  a  failure  to  show  that  the  insured 
property  was  in  the  designated  buildings  when  destroyed.  In  this 
case  the  jury  must  have  found  that  the  oil  insured  was  destroyed 
"  while  contained  in  the  iron  crude-oil  tank  known  as  '  No.  i  '  "  on 
the  plan  of  tanks  at  Johnson's  Station,  and  that,  we  think,  fully 
satisfies  the  terms  of  the  contract.  The  parties  were  not  contracting 
with  reference  to  an  insurance  upon  the  tank,  but  only  upon  the  oil 
contained  in  it. 

With  that  construction  of  the  company  in  view,  the  learned  presi- 
dent of  the  Common  Pleas  rightly  instructed  the  jury  as  follows: 
"  If  you  conclude  that  this  tank  was  picked  up  bodily  by  the  flood, 
and  floated  down  the  stream,  and  lodged  from  three  to  five  hundred 
feet  away  from  the  place  where  it  was  constructed,  against  the 
abutments  of  the  bridge,  and  remained  intact,  and  in  that  way  held 
the  oil,  as  an  oil  tank  would  hold  oil,  so  that  it  could  have  been 
recovered  by  the  company,  and  while  there,  in  place  of  on  the 
original  foundation,  the  oil  in  the  tank  was  burned,  then  the  con- 
tract of  indemnity  would  be  binding,  and  the  defendant  would  be 
liable  for  such  loss  as  the  plaintiff  might  sustain  by  reason  of  the 
fire  on  their  proportionate  share  of  the  loss."  The  jury,  under  this 
instruction,  having  found  for  the  plaintiff,  and  assessed  its  dam- 
ages, the  necessary  implication  is  that  they  found  the  facts  of  which 
the  instruction  is  predicated  to  be  true;  that  the  oil  tank  No.  i 
contained  and  held  the  oil,  for  the  value  of  which  they  assessed 
damages  in  favor  of  the  plaintiff,  until  it  was  destroyed  by  fire,  etc. 

But  assuming,  merely  for  argument's  sake,  that  the  description 
of  the  tank's  location  may  be  regarded  as  in  the  nature  of  a  war- 
ranty, it  can  only  be  construed  as  a  warranty  of  location  at  the  time 


CONSTRUCTION  OF  THE  CONTRACT.  1 33 

the  insurance  was  effected,  and  not  that  the  tank  would  thereafter  re- 
main in  the  same  location.  Insurance  Co.  v.  Mitchell^  48  Pa.  St.  367. 
As  a  statement  of  then  existing  facts,  it  is  not  even  pretended  that 
the  description  of  the  location  of  the  tank,  etc.,  was  not  strictly 
true.  If  it  was  intended  to  make  the  continued  location  of  the  tank 
at  the  precise  point  where  it  then  was  a  condition  of  the  under- 
writer's liability,  it  would  have  been  an  easy  matter  to  have  said  so. 
It  is  not  the  province  of  courts  to  indulge  in  conjectures  favorable 
to  such  insurance  companies  as  are  disposed,  upon  mere  technicali- 
ties, to  avoid  the  payment  of  honest  claims.  Cases  are  not  unfre- 
quent  in  which  statements  in  regard  to  the  use  and  character  of 
buildings,  etc.,  are  construed  as  merely  descriptive  of  the  risk  at 
the  time  the  application  is  made,  and  not  as  a  warranty  that  there 
shall  be  no  change  during  the  life  of  the  policy.  Wood,  Ins.  g§  444, 
446,  and  cases  there  cited.  In  Everett  v.  Insurance  Co.,  21  Minn. 
76,  a  threshing  machine  was  insured  as  "  stored  in  a  certain  barn  on 
section  ^d,""  etc.,  and  it  was  held  that  this  was  a  mere  matter  of 
description,  operating  to  identify  the  property,  and  not  a  promissory 
stipulation  on  the  part  of  the  insured,  nor  a  condition  on  the  part 
of  the  insurer. 

But,  giving  the  defendant  the  benefit  of  the  broadest  construc- 
tion, the  language  used  in  describing  the  location  of  the  oil  insured 
cannot  amount  to  anything  more  than  an  implied  warranty  of  the 
plaintiff  company  that  it  will  not  voluntarily  change  its  location. 
This  construction  appears  to  have  been  recognized  in  Sillem  v. 
Thornton.,  3  El.  &  Bl.  868,  and  was  perhaps  warranted  by  the  facts 
of  that  case.  Even  in  that  view,  we  have,  on  the  one  hand,  only 
an  implied  warranty  that  the  insured  will  not  voluntarily  change  the 
location  of  the  tank  containing  the  oil,  and,  on  the  other,  defend- 
ant's admission,  in  its  affidavit  of  defense,  that  the  location  of  the 
tank  was  changed  "  by  a  visitation  of  Providence."  *  *  *  [Z>/V- 
cussion  of  the  second  point  omitted  here.  ] 

Judgment  affirmed.* 


'  See  also  Burleigh  v.  Ins.  Co..,  90  N.  Y.  220,  in  which  the  clause  "  situate 
detached  at  least  100  feet  "  was  construed  to  mean  the  same  as  if  the  policy  had 
read  "  situate  detached  at  least  100  feet  from  any  other  building  of  such  char- 
acter as  to  constitute  an  exposure  and  increase  the  risk." 

For  an  emphatic  and  interesting  statement  of  some  of  the  causes  which  created 
the  tendency  of  courts  to  construe  insurance  policies  against  the  insurer,  see 
Judge  Doe's  opinion  in  DeLancey  v.  Ins.  Co.,  52  N.  H.  581,  587;  and  also  Judge 
Stone's  opinion  in  Piedmont  dr'c.  Co.  v.  Young,  58  Ala.  476. 

"  We  do  not  overlook  the  claim  of  defendant's  counsel  that  the  standard  pol- 
icy is  in  a  form  prescribed  by  State  authority,  and  should  no  longer  be  subject 


134  CONSTRUCTION    01"   TIIK    CONTRACT. 

BALEV  V.  HOMESTEAD  FIRE  INSURANCE  CO. 

80  N.  Y.  21.  —  1S80. 

{^Reported  herein  at  p.   1 58.] 


LOY  V.  HOME  INSURANCE   CO. 
24  Minn.  315-  —  1877- 
[Reported  herein  at  p.  155.] 


to  the  rule  that  such  contracts  are  to  be  construed  most  favorably  to  the  insured. 
We  need  not  determine  how  far  this  rule  of  construction  should  be  held  modified 
by  the  conditions  stated.  The  terms  employed  in  this  policy  had  been  in  pre- 
vious use  in  insurance  contracts,  and,  as  we  have  seen,  had  had  a  judicial  con- 
struction. It  is  to  be  assumed  that  these  terms  were  used  in  this  policy  in  the 
sense  in  which  they  were  previously  used  and  defined." — John  Davii  df  Co.  v. 
Ins.  Co.,  115  Mich.  382,  385. 


PART  IV. 
The  Terms  of  the  Insurance  Contract. 


I.  In  General. 
a.  Warranties.' 
b.  Premiums.' 


Bradley,  J.,  m  NEW  YORK  LIFE  INSURANCE  CO.  v. 
STATHAM. 

93  U.  S.  24,  30.  —  1876. 

We  agree  with  the  court  below,  that  the  contract  is  not  an  assur- 
ance for  a  single  year,  with  a  privilege  of  renewal  from  year  to  year, 
by  paying  the  annual  premium,  but  that  it  is  an  entire  contract  of 
assurance  for  life,  subject  to  discontinuance  and  forfeiture  for  non- 
payment of  any  of  the  stipulated  premiums.  Such  is  the  form  of 
the  contract,  and  such  is  its  character.  It  has  been  contended  that 
the  payment  of  each  premium  is  the  consideration  for  insurance 
during  the  next  following  year — as  in  fire  policies.^  But  the  posi- 
tion is  untenable.  It  often  happens  that  the  assured, pays  the  entire 
premium  in  advance,  or  in  five,  ten,  or  twenty  annual  instalments. 
Such  instalments  are  clearly  not  intended  as  the  consideration  for 
the  respective  years  in  which  they  are  paid;  for,  after  they  are  all 
paid,  the  policy  stands  good  for  the  balance  of  the  life  insured, 
without  any  further  payment.  Each  instalment  is,  in  fact,  part 
consideration  of  the  entire  insurance  for  life  It  is  the  same  thing, 
where  the  annual  premiums  are  spread  over  the  whole  life.  The 
value  of  assurance  for  one  year  of  a  man's  life  when  he  is  young, 
strong  and  healthy,  is  manifestly  not  the  same  as  when  he  is  old 
and   decrepit.     There    is    no   proper   relation   between   the   annual 

'See  Representations  and  Warranties,  ante,  p.  108. 

'See  also  Consideration,  ante,  p.  92;  Non-forfeiture, /oj'A  P-  268.  For  waiver 
of  payment  of  premiums  and  waiver  of  other  provisions  of  insurance  contracts, 
see  the  topic  Waiver  and  Estoppel,  post,  p    417. 

*See  extract  from   Worthini^to;..  v,  Ins.  Co.,  41  Conn.  372,  399,  a«/c',  p.  93,    note. 

r.35] 


136  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

premium  and  the  risk  of  assurance  for  the  year  in  which  it  is  paid. 
This  idea  of  insurance  from  year  to  year  is  the  suggestion  of  ingeni- 
ous counsel.  The  annual  premiums  are  an  annuity,  the  present 
value  of  which  is  calculated  to  correspond  with  the  present  value  of 
the  amount  assured,  a  reasonable  percentage  being  added  to  the 
premiums  to  cover  expenses  and  contingencies.  The  whole  prem- 
iums are  balanced  against  the  whole  insurance. 


V.'HEELER  V.  THE  CONNECTICUT  MUTUAL  LIFE  INS.  CO. 

82  N.  Y.  543-  —  1880. 

Miller,  J.  —  The  complaint  in  this  action  sets  forth  alleged  causes 
of  action  upon  two  separate  policies  of  insurance,  claiming  to  recover 
the  amount  named  in  each,  and  also  alleges  that  a  dividend  was 
declared  out  of  the  surplus  earnings  and  receipts  of  the  company, 
for  a  portion  of  which  the  insured  was  entitled  to  a  paid-up  policy, 
which  on  demand  was  refused.  The  demurrer  to  the  complaint 
presents  the  question  whether  any  cause  of  action  is  set  forth 
therein. 

The  policies  upon  which  this  action  was  brought  provided  for  the 
payment  of  an  annual  premium,  and  contained  a  condition  as  fol- 
lows: "  That  this  policy  shall  not  take  effect  until  the  advance 
premium  hereon  shall  have  been  actually  paid,  during  the  life-time 
of  the  insured,  and  that  if  any  subsequent  premium  on  this  policy 
be  not  paid  when  due,  then  this  policy  shall  cease  and  determine 
(except  as  hereinafter  provided),  and  this  company  shall  not  be 
liable  for  the  payment  of  the  sum  insured  herein,  nor  for  any  part 
thereof."  The  annual  premium  due  on  the  28th  of  October,  1873, 
was  not  paid;  the  complaint  alleges,  and  upon  demurrer  it  must  be 
taken  as  true,  that  previous  to  the  day  last  mentioned,  Vose,  the 
insured,  became  and  was  by  the  visitation  and  act  of  God,  insane, 
and  consequently  unable  to  and  did  not  pay  the  premium, 
although  he  had  means  to  pay  the  same;  but  he  was  bereft  of  his 
reason  and  so  continued  until  his  death,  which  occurred  March  17, 
1874,  and  in  consequence  thereof  did  not  know  nor  remember  that 
said  premium  was  then  due,  nor  that  he  had  agreed  to  pay  the  same. 

Vose  having  died  without  a  payment  of  the  premium,  according 
to  the  terms  of  the  contract,  the  question  arises  whether  his  insanity 
is  an  excuse  for  non-payment  and  the  forfeiture  is  thereby  waived. 
Courts  of  equity  will  relieve  aganist  a  forfeiture  in  many  cases,  but 
none   of    the   decisions   have  gone   to   the   extent   of  holding  that 


IN   GENERAL.  1 37 

insanity  will  constitute  an  excuse  for  failing  to  comply  with  the 
terms  of  the  condition  referred  to.  In  Rose  v.  Rose  (Amb.  ZZ'^)'> 
Lord  Hardwicke  laid  down  the  rule  thus:  "  Equity  will  relieve 
against  all  penalties  whatsoever;  against  non-payment  of  money  at 
a  certain  day;  against  forfeitures  of  copyholds;  but  they  are  all 
cases  where  the  court  can  do  it  with  safety  to  the  other  party;  for 
if  the  court  cannot  put  him  into  as  good  condition  as  if  the  agree- 
ment had  been  performed,  the  court  will  not  relieve."  Even  if  a 
condition  subsequent  becomes  impossible  by  the  act  of  God,  or  of 
the  law,  or  of  the  obligee,  etc.,  the  estate  will  not  be  defeated.  Co. 
Litt.  206  b.  The  defendant  here  could  not  well  be  placed  in  as 
good  a  condition  as  it  had  been,  by  the  payment  of  the  premium 
after  the  forfeiture,  for  by  such  payment  it  would  be  compelled  to 
pay  the  amount  named  in  the  policies,  thus  adding  to  its  obligation. 
So  also  where  the  contract  is  for  personal  services,  which  none 
but  the  person  contracting  can  perform,  inevitable  accident,  or  the 
act  of  God,  will  excuse  non-performance.  But  when  the  thing  or 
work  to  be  performed  may  be  done  by  another  person,  then  all  acci- 
dents are  at  the  risk  of  the  promisor.  Story  on  Bailments,  §  36  and 
notes;  Wolfe  x.JIotaes,  20  N.  Y.  197;  Clark  v.  Gilbert,  26  id.  279; 
Spalding  V.  Rosa,  71  id.  40.  In  the  present  case,  the  condition  did 
not  require  the  insured  himself  to  pay  the  premiums,  ana  it  could 
have  been  done  quite  as  well  by  any  one  on  his  behalf.  After  Vose 
became  insane  he  was  not  really  the  party  in  interest.  He  had 
assigned  the  policies  to  his  children,  and  they  were  the  parties  inter- 
ested therein  and  to  be  affected  by  a  failure  to  perform  the  condition 
of  the  contract.  Although  Vose  was  their  guardian,  if  incapacitated 
by  his  insanity  a  competent  person  could  have  been  appointed  in 
his  place,  and  hence  his  insanity  was  not  necessarily  an  insuperable 
obstacle  to  their  performance  of  the  condition  of  the  policv,  and 
they  were  not  relieved  thereby.  So  long  as  the  act  could  be  per- 
formed by  any  other  person,  its  performance  did  not  depend  upon 
Vose's  continued  capacity;  and  although  rendered  incapable  by  his 
insanity,  the  case  is  not  within  the  rule  which  relieves  a  party  from 
the  consequences  of  an  omission  to  do  an  act  rendered  impossible 
by  omnipotent  power.  Broom's  Legal  Maxims,  6th  Am.  ed.,  178, 
179;  Howell  V.  Knickerbocker  Life  Ins.  Co.,  44  N.  Y.  276.  While  as  a 
general  rule  where  the  performance  of  a  duty  created  by  law  is 
prevented  by  inevitable  accident,  without  the  fault  of  the  party, 
the  default  will  be  excused,  yet  when  a  person  by  express  contract 
engages  absolutely  to  do  an  act  not  impossible  or  unlawful  at  the 
time,  neither  inevitable  accident,  nor  other  unforeseen  contingency 
not  within  his  control,  will  excuse  him,  for  the  reason  that  he  might 


138  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

have  provided  against  them  by  his  contract.  Dexter  v.  N'orton,  47 
N.  Y.  62;  Harmony  v.  Bingham,  12  id.  99,  107;  Tompkins  v.  Dudley, 
25  id.  275.  The  principle  thus  established  has  been  especially 
applied  in  reference  to  policies  of  insurance,  where  the  payment  of 
the  premium  is  held  to  be  a  condition  precedent  which  must  be  kept 
or  the  policy  falls.  Roehner  v.  Knickerbocker  Life  Ins.  Co.,  63  N.  Y. 
160;  Evans  v.  U.  S.  Life  Lns.  Co.,  64  id.  304;  Beehe  v.  Johnson,  19 
Wend.  500.  In  tlie  case  last  cited  it  was  laid  down  that  to  excuse 
non-performance,  it  must  appear  that  the  act  to  be  done  could  not 
by  any  means  have  been  accomplished. 

The  learned  counsel  for  the  plaintiff  seeks  to  distinguish  63  N.  Y. 
160,  and  64  id.  304,  above  cited,  from  the  case  at  bar;  but  we  are 
unable  to  perceive  any  such  difference  as  prevents  an  applica- 
tion of  the  principle  decided  in  these  cases,  and  we  think  that 
they  are  directly  in  point  upon  the  question  discussed.  Reliance 
is  also  placed  upon  the  decisions  of  this  court  in  Cohen  v.  The 
N.  V.  Mut.  Life  Lns.  Co.,  50  N.  Y.  610,  and  Sands  v.  The  N.  V.  Life 
Lns.  Co.,  id.  626,  to  sustain  the  theory  of  the  plaintiff.  Those 
decisions  hold  that  the  occurrence  of  war  between  two  States  forbid 
and  excused  the  transmission  and  payment  of  premiums  on  the  poli- 
cies then  in  question  from  one  State  to  another,  and  legally  excuses 
their  payment;  and  as  the  premiums  could  not  be  paid  as  they  fell 
due,  they  were  suspended,  and  a  tender,  after  the  termination  of 
the  war,  with  interest,  renewed  the  policies.'  This  condition  of 
affairs  arises  from  the  belligerent  attitude  between  the  hostile 
States,  which  rendered  it  impracticable  to  comply  with  the  terms  of 
the  contract.  War  necessarily  prevented  communication  between 
the  citizens  of  such  States;  and  as  it  existed  without  the  fault  of  the 
insured,  in  the  cases  cited,  and  for  that  reason  no  intercourse 
could  be  maintained  for  business  purposes,  the  insured  were  not  m 
any  sense  in  fault  for  a  failure  to  comply  with  the  conditions  con- 
tained in  the  policies  in  question.  As  it  was  impossible  for  either 
one  of  the  insured  to  pay  the  premium  required,  or  to  procure  any 
one  else  to  do  so  upon  his  behalf,  there  is  no  satisfactory  reason 
why  he  should  not  be  excused.  This  rule  which  is  well  settled  by 
the  law  of  nations,  rests  upon  the  grounds  of  public  policy  by  which 

'  Contra,  N'e~.u  York  Life  his.  Co.  v.  Statham,  93  U.  S.  24,  in  which  the  court 
concludes  that  "  the  policies  in  question  must  be  regarded  as  extinguished  by 
the  nonpayment  of  the  premiums,  though  caused  by  the  existence  of  the  war, 
and  that  an  action  will  not  lie  for  the  amount  insured  thereon.  Secondly,  that 
such  failure  being  caused  by  a  public  war,  without  the  fault  of  the  assured, 
they  are  entitled  ex  aquo  ft  bono  to  recover  the  equitable  value  of  the  policies 
with  interest  from  the  close  of  the  war." 


IN   GENERAL.  1 39 

contracts  between  belligerent  States  are  suspended  during  the  war, 
but  are  not  annulled.  This  doctrine  is  founded  upon  the  principle 
that  the  state,  and  not  the  individual,  wages  the  war.  Phil.  Int. 
Law,  666;  Wheat.  Int.  Law,  8th  ed.,  403,  §  317  The  cases  cited 
are  not  analogous;  for  while  the  individual  can  pay  or  provide  for 
payment  through  another,  in  case  of  war  he  is  entirely  helpless  to 
fulfill  and  carry  out  the  contract,  and  at  the  mercy  of  the  govern- 
ment. The  authorities  of  the  hostile  States  have  placed  it  beyond 
his  control,  suspended  all  intercourse,  stopped  all  business  rela- 
tions, and  laid  a  heavy  arm  upon  all  communications  between  their 
citizens.  As  there  is  no  ability  to  fulfill,  no  means  of  paying,  the 
justice  and  propriety  of  the  rule  is  apparent,  while  its  application 
in  the  case  at  bar  cannot  be  upheld  upon  any  such  ground.  There 
is,  we  think,  a  wide  distinction  in  principle  recognized  in  the  books 
between  inability  to  fulfill  the  terms  of  the  contract,  where,  by  the 
act  of  two  governments  war  intervenes  and  prevents  a  fulfilment, 
and  where  the  default  arises  from  a  duty  or  charge  which  has  been 
assumed  by  the  party  and  is  capable  of  fulfillment  either  by  himself 
or  by  another  on  his  behalf. 

While  the  court  of  equity  will  interpose  its  power  to  relieve  against 
forfeitures  for  a  breach  of  a  condition  subsequent  caused  by 
unavoidable  accident,  by  fraud,  surprise  or  ignorance,  in  many 
cases,  that  power  has  never  been  extended  so  as  to  excuse  a  breach 
of  contract  of  this  description  arising  from  the  disability  of  a  party 
caused  by  sickness  or  insanity. 

The  case  of  Baldwin  v.  The  N.  Y  Life  Lis.  Co.,  3  Bosw.  530, 
which  is  cited  and  relied  upon  by  the  appellant,  involved  no  ques- 
tion as  to  the  non-payment  of  the  premium  but  related  to  a  pro- 
vision in  the  contract  whereby  the  insured  was  licensed  to  travel  in 
prohibited  localities,  returning  within  a  specified  period,  and  was 
prevented  by  illness  from  performing  the  condition.  It  was  anal- 
ogous to  contracts  for  personal  services,  to  which  reference  has 
been  had,  and  the  authority  has  no  application  in  the  case  consid- 
ered. Besides  it  is  overruled  by  Evans  v.  U.  S.  Life  Lfis.  Co.,  supra. 
In  the  case  at  bar,  it  is  not  claimed  that  the  performance  was  strictly 
impossible,  and  therefore  that  it  was  excused  by  law  or  that  equi- 
table relief  should  be  granted  upon  that  ground;  and  we  are  unable 
to  discover  that  a  case  is  made  out,  within  any  acknowledged  prin- 
ciple, which  authorizes  the  interposition  of  a  court  of  equity. 

Nor  is  there  any  ground  for  claiming  that,  by  the  provisions  of 
the  contract,  the  intention  of  the  parties  was  that  the  terms  of 
payment  should  not  be  obligatory  in  case  of  unavoidable  sickness  or 
insanity.     The  law  places  a  reasonable  constructio:!  upon  all  con- 


I4P  THE   TERMS   OF   THE    INSURAN'CE   CONTRACT. 

tracts,  but  in  cases  of  insurance  policies,  where  the  prompt  payment 
of  premiums  is  an  important  element  of  the  business,  and  forms  the 
basis  of  its  calculation  by  the  compounding  of  interest  thereon,  it 
is  scarcely  to  be  supposed  that  such  payment  can  be  waived,  except 
in  conformity  with  some  established  rule  of  law  or  by  express 
agreement. 

The  claim  of  the  plaintiff  that  the  moneys  in  possession  of  the 
company  belonging  to  Vose,  being  dividends  on  the  policies  in  ques- 
tion, should  be  applied  in  payment  of  the  premiums  falling  due,  is 
without  merit,  as  such  dividends  would  have  been  insufficient  to 
pay  the  premiums  due,  even  if  applied.  Nor  we're  the  company 
bound  to  pay  such  dividends  to  the  insured  and  notify  him  that  the 
policy  was  forfeited  if  not  applied.  The  money  was  never  demanded, 
nor  any  request  made  to  apply  the  same;  and  hence  the  defendant 
was  under  no  obligation  to  apply  or  to  pay  the  dividends  on  account 
of  the  premiums.     *     *     * » 


McAllister  v.  new  England  mutual  life 
insurance  co. 

loi  M.\ss.  558.  —  1S69. 

Action  upon  a  life  policy.  It  was  agreed  by  plaintiff  and  defend- 
ants that  when  the  defendants  delivered  the  policy  they  took  for 
the  first  annual  premium  $30.12,  in  cash  and  two  promissory  notes; 

'  "  Promptness  of  payment  is  essential  in  the  business  of  lifs  insurance.  Ail 
the  calculations  of  the  insurance  comoany  are  based  on  the  hypothesis  of  prompt 
payments.  They  not  only  calculate  on  the  receipt  of  the  premiums  when  due, 
but  on  compounding  interest  upon  them.  It  is  on  this  basis  that  they  are 
enabled  to  offer  assurance  at  the  favorable  rates  they  do.  Forfeiture  for  non- 
payment is  a  necessary  means  of  protecting  themselves  from  embarrassment. 
Unless  it  were  enforceable,  the  business  would  be  thrown  into  utter  confusion." 

—  .\'.    Y.  Life  Ins.   Co.  v.  Stathant,  93   U.  S.  24,  30.     See  also  Thompson  v.  Co., 
104  U.  S.  252;   Klein  v.  Co.,  104  U.  S.  88;   Carpenter  v.  Co.,  68  la.  453. 

An  insurance  agent  having  authority  to  negotiate  contracts  of  life  insurance 
has  no  implied  authority  to  contract  for  the  payment  of  the  premiums  in  goods. 

—  Hoffman  v.  Ins.  Co.,  92   U.  S.  161. 

In  IVhitingv.  Ins.  Co.,  129  Mass.  24,  where  it  was  provided  in  the  policy  that 
it  "  shall  not  take  effect  until  the  advance  premium  hereon  shall  have  been  paid 
during  the  lifetime  of  the  person  whose  life  is  hereby  insured  "  it  was  held  that 
a  paymeni  of  the  advance  premium  ty  a  third  person,  without  the  knowledge 
of  the  assured,  is  of  noefifect:  for  whatever  may  be  the  law  as  applicable  to  the 
payments  of  annual  premiums  under  a  policy  which  has  once  attached,  a  con- 
tract of  insurance  cannot  be  originally  created  without  the  consent  of  the 
assured. 


IN   GENERAL.  141 

one  dated  April  16,  1866,  payable  in  six  months;  and  the  other, 
dated  April  11,  1866,  payable  on  demand  after  five  years.  Samuel 
McAllister,  the  life  insured,  died  March  7,  1867. 

Gray,  J.  The  policy  upon  which  this  action  is  brought  is  expressed 
to  be  made  in  consideration  of  a  premium  already  paid,  and  of  a 
like  sum  to  be  paid  annually  during  its  continuance;  and  "  does  not 
take  effect  until  the  premium  is  paid."  But  it  is  agreed  by  the 
parties,  in  the  case  stated,  that  the  defendants  made  and  delivered 
the  policy  to  the  assured,  and  at  the  time  of  the  delivery  took  for 
the  first  premium  a  certain  sum  in  cash,  and  two  notes  of  the  assured, 
one  payable  in  six  months  and  the  other  on  demand  after  five  years. 
Whatever  were  the  powers  of  the  directors,  the  corporation  itself 
might  certainly  take  notes  for  part  of  the  premium,  instead  of  insist- 
ing on  immediate  payment  of  the  whole.  Hodsdon  v.  Insurance  Co., 
97  Mass.  144.  The  policy  thus  took  effect  as  a  binding  contract, 
and  the  question  is  whether  it  was  terminated  before  the  death  of 
the  assured. 

The  defendants  rely  upon  that  provision  of  the  policy,  which 
declares,  that,  "  in  case  any  premium  due  upon  the  policy  shall  not 
be  paid  at  the  day  when  payable,  the  policy  shall  thereupon  become 
forfeited  and  void,"  except  for  a  certain  period  which  had  expired 
before  the  death  of  the  assured  in  this  case.  But  the  court  is  of 
opinion  that  this  clause,  which  is  inserted  for  the  benefit  of  the 
insurers,  and  to  be  construed  most  strongly  against  them,  and 
which  merely  provides  that  the  policy  "  shall  become  forfeited  and 
void,"  in  case  a  premium  "  shall  not  be  paid  at  the  day  when  pay- 
able," can  only  apply  to  a  policy  which  has  once  taken  effect,  and 
to  non-payment  of  a  premium  payable  after  that  time,  and  cannot  be 
held  to  refer  to  that  premium  which  the  policy  contemplates  and 
requires  to  be  paid  before  the  contract  of  insurance  has  any  binding 
force. 

This  policy  does  not  provide  that  it  shall  be  avoided  or  forfeited 
upon  the  failure  to  pay  any  note  or  obligation  given  for  a  premium, 
and  differs  in  that  respect  from  the  cases  of  Pitt  v.  Insurance  Co., 
100  Mass.  500,  and  Roberts  v.  Insurance  Co.,  Disney,  355,  cited  for 
the  defendants. 

The  subsequent  stipulation,  by  which  the  policy,  and  any  sums 
that  shall  become  due  thereon  from  the  company,  are  pledged  and 
hypothecated  to  them  to  secure  the  payment  of  any  premium  on 
which  credit  may  be  given,  and  of  any  note  or  security  therefor, 
expressly  declares  that  "  this  pledge  and  hypothecation  shall  in  no 
respect  affect  the  provisions  respecting  the  forfeiture  of  the  policy," 
and  cannot  therefore  enlarge  those  provisions. 


142  THE   TERMS   OF   THK    I NSU  KANCi-:    CUM  KACT. 

The  difference  also  in  the  form  of  the  two  notes  taken  by  the 
defendants  for  part  of  the  premium  —  that  for  the  smallest  amount 
and  payable  \n  the  shortest  time  omitting  the  provision,  which  is 
carefully  inserted  in  the  other,  of  "  said  policy  being  agreed  to  be 
subject  to  forfeiture,  and  to  become  void  in  case  of  non-payment  of 
interest  and  principal  of  this  note  in  compliance  with  the  terms 
thereof  "  —  accords  with  the  construction  that  non-payment  of  the 
first  note  was  not  intended  to  have  the  effect  of  avoiding  the  policy. 

The  ref'jsal  of  the  assured  to  pay  that  note  after  it  had  become 
due,  accompanied  by  the  statement  that  "  he  would  not  have  any- 
thing more  to  do  with  the  company,  and  abandoned  the  whole 
thmg,"  does  not  appear  to  have  been  assented  to  by  the  company; 
for  the  company  continued  to  hold  the  notes,  and  the  assured  to 
hold  the  policy. 

The  defendants,  having  admitted  the  death  of  the  assured  and 
due  notice  and  proof  thereof,  and  having  failed  to  show  that  the 
policy  was  forfeited,  canceled,  or  in  any  way  avoided  or  determined 
before  his  death,  are  liable  to  his  administratrix  in  this  action. 

Judgment  for  the  plaintiff. 


II.  Terms  of  the   Fire  Insurance  Contract. 

a.  Respecting  Matters  Before  Loss. 

I.   Increase  of  Hazard. 

KYTE  V.  COMMERCIAL  UNION  ASSURANCE  CO. 

149  Mass.  116.  —  1889. 

C.  Allen,  J.  These  policies  were  in  the  form  of  the  Massachu- 
setts Standard  policy,  and  each  provided  that  "  This  policy  shall  be 
void  *  *  *  if,  without  such  assent  [namely  the  assent  in  writing 
or  in  print  of  the  company],  the  situation  or  circumstances  affect- 
ing the  risk  shall,  by  or  with  the  knowledge,  advice,  agency,  or 
consent  of  the  insured,  be  so  altered  as  to  cause  an  increase  ol 
such  risks,  *  *  *  or  if  gunpowder  or  other  articles  subject  to 
legal  restriction  shall  be  kept  in  quantities  or  manner  different  from 
those  allowed  or  prescribed  by  law."  Various  other  circumstances 
were  enumerated  which  would  also  avoid  the  policy.  At  the  begin- 
ning of  the  trial,  the  defendant  waived  every  defence  except 
increase  of  risk.  The  defence  of  the  illegal  keeping  of  intoxicat- 
ing liquors,  as  a  separate  and  distinct  defence,  was  therefore  waived. 

We  have  to  consider,  in  the  first  place,  whether  the    instructions 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  I43 

requested  by  the  defendant  were  given  in  substance.  The  plaintiff 
contends  that  they  were.  The  learned  judge  before  whom  the  case 
was  tried  adopted  in  substance  the  third  and  fifth  instructions 
asked  for  by  the  defendant,  and  thus  instructed  the  jury,  that  if 
they  should  find  that  during  the  time  for  which  these  policies  were 
issued  the  plaintiff  Kyte,  by  obtaining  a  victualler's  license  and 
making  use  of  this  building  under  said  license,  and  legally  or  ille- 
gally selling  intoxicating  liquors  therein,  increased  the  risk,  then 
this  policy  became  void  as  to  the  plaintiff  Kyte,  and  he  should 
not  recover  for  his  interest  therein;  and  if  they  should  find  that 
while  these  policies  were  in  force  intoxicating  liquors  were  kept  and 
sold  in  this  building  by  the  plaintiff  Kyte,  or  with  his  consent  or 
knowledge,  and  that  thereby  the  risk  was  increased,  this  policy 
became  void  as  to  his  interest,  and  he  could  not  recover.  This  was 
a  general  and  broad  instruction,  including  the  increase  of  risk  by 
using  the  premises  as  a  common  victualling  place,  or  as  a  place  for 
selling  intoxicating  liquors  legally  or  illegally,  and  well  covered  the 
general  question  of  the  effect  of  an  increase  of  risk.  From  this 
instruction,  taken  alone,  a  jury  might  well  have  inferred  that  the 
policy  would  be  void  in  case  of  any  such  increase  of  risk  at  any  time 
during  the  time  covered  by  the  policies  and  before  the  fire. 

But  the  defendant,  in  the  fourth  request  for  instructions,  asked 
for  a  special  instruction,  adapted  to  the  case  of  a  temporary  increase 
of  risk  which  had  ceased  before  the  time  of  the  fire;  that  is  to  say, 
that  if  the  jury  should  find  that,  by  the  illegal  sale  of  intoxicating 
liquors  in  this  building  by  the  plaintiff  Kyte,  or  by  others  with  his 
consent  and  knowledge,  for  a  certain  portion  of  the  time  for  which 
these  policies  were  issued,  the  risk  was  for  that  period  increased, 
this  policy  would  be  void  as  to  Kyte's  interest,  and  he  could  not 
recover,  although  this  increase  was  not  permanent.  The  judge 
declined  to  give  this  ruling,  and  instructed  the  jury,  in  substance, 
that  if  that  illegal  use  was  temporary,  not  contemplated  at  the  time 
when  the  policy  was  taken  by  the  plaintiff,  and  ceased  before  the 
fire,  then  the  fact  that  he  had  made  an  illegal  use  of  the  premises 
in  1882,  which  was  during  the  time  covered  by  the  policy,  would 
not  deprive  the  plaintiff  of  the  right  to  maintain  the  action;  and 
that  his  right  under  the  policy,  if  suspended  while  the  illegal  use  of 
the  building  continued,  would  revive  when  he  ceased  to  use  it  ille- 
gally. This  instruction  did  not  in  express  terms  mention  the  sub- 
ject of  an  increase  of  risk  by  the  illegal  use  of  the  premises  for 
selling  liquor;  but  the  instruction  was  given  in  the  place  of  the 
fourth  request  for  instructions,  and  that  request  was  refused,  the 
judge  saying  that  he  had  given  what  would  be  entirely  inconsistent 


144  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

with  it.  The  question  is  thus  presented  whether  the  provision  of 
the  policy  that  it  shall  be  void  in  case  of  an  increase  of  risk  means 
that  it  shall  be  void  only  during  the  time  while  the  increase  of  risk 
may  last,  and  may  revive  again  upon  the  termination  of  the  increase 
of  risk.  The  provision  is  that  the  policy  shall  be  void  if  any  one  of 
several  circumstances  successively  enumerated  shall  be  found  to 
exist.  Some  of  these  circumstances  relate  to  the  time  of  issuing 
the  policy,  and  others  could  not  arise  till  afterwards.  They  are  of 
different  degrees  of  importance,  some  of  them  going  to  the  essen- 
tial matters  of  the  contract,  and  others  being  comparatively  trivial 
in  character.  The  language  of  the  policy  is  the  same  in  respect  to 
them  all,  that  the  policy  shall  be  void. 

In  Hinckley  v.  Germania  Ins.  Co.,  140  Mass.  38,  the  policy  was  in 
the  same  form  as  those  in  the  present  cases,  and  for  a  short  time 
during  the  term  of  the  policy  the  plaintiff  kept  a  bowling  alley  and 
billiard  table  without  having  any  license  therefor.  There  was  no 
question  of  increase  of  risk,  or  other  actual  prejudice  to  the  insurer; 
and  under  these  circumstances  two  questions  arose:  first,  whether 
the  plaintiff's  act  fell  within  the  pro''isions  that  the  policy  should  be 
void  if  gunpowder  or  other  articles  subject  to  legal  restrictions 
should  be  kept  in  a  manner  different  from  that  allowed  by  law;  and 
secondly,  whether,  assuming  that  the  policy  would  be  void  during 
the  time  of  the  illegal  keeping  of  the  bowling  alley  and  billiard 
table,  it  would  revive  after  such  temporary  use  had  ceased.  In  decid- 
ing the  case,  the  court  intimated  that  the  plaintiff's  act  was  not 
within  the  meaning  of  the  provision  in  the  policy,  unless  the  risk  was 
thereby  increased,  but  placed  the  decision  upon  the  second  ground, 
that  the  policy  would  revive.  The  court  now  thinks  it  would  have 
been  better  to  place  the  decision  of  this  part  of  the  case  solely  upon 
the  first  ground,  leaving  it  an  open  question  whether  a  departure 
from  the  terms  of  the  provision  of  the  policy,  without  an  increase 
of  risk,  may  be  deemed  merely  to  suspend,  and  not  absolutely  to 
avoid  the  policy.  However  that  may  be,  we  think  an  increase  of 
risk  entitles  the  insurer  to  avoid  the  policy  absolutely.  The  con- 
tract of  insurance  depends  essentially  upon  an  adjustment  of  the 
premium  to  the  risk  assumed.  If  the  assured  by  his  voluntary  act 
increases  the  risk,  and  the  fact  is  not  known,  the  result  is  that  he 
gets  an  insurance  for  which  he  has  not  paid.  In  its  effect  upon  the 
company,  it  is  not  much  different  from  a  misrepresentation  of  the 
condition  of  the  property. 

If  the  provision  stood  alone,  that  in  case  of  any  material  misrep- 
resentation as  to  the  risk  or  any  voluntary  increase  of  risk  after- 
wards the  policy  should  be  void,  it  could  hardly  be  doubted  that  the 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  145 

words  should  be  taken  in  their  natural,  obvious  meaning.  The  fact 
that  with  this  are  coupled  the  other  provisions  above  referred  to, 
does  not  change  its  meaning  with  reference  to  the  effect  and  conse- 
quence of  an  increase  of  risk.  An  increase  of  risk  which  is  sub- 
stantial, and  whicli  is  continued  for  a  considerable  period  of  time, 
is  a  direct  and  certain  injury  to  the  insurer,  and  changes  the  basis 
upon  which  the  contract  of  insurance  rests;  and  since  there  is  a 
provision  that,  in  case  of  an  increase  of  risk  which  is  consented  to 
or  known  by  the  assured,  and  not  disclosed  and  the  assent  of  the 
insurer  obtained,  the  policy  shall  be  void,  we  do  not  feel  at  liberty 
to  qualify  the  meaning  of  these  words  by  holding  that  the  policy 
is  only  suspended  during  the  continuance  of  such  increase  of  risk. 
Lyman  v.  State  Ins.  Co..,  14  Allen,  329;  Mead  v.  Northwesterti  Ins. 
Co.,  7  N.  Y.  530.  It  follows,  therefore,  that  the  fourth  instruction 
which  was  requested,  or  something  in  substance  like  it,  should  have 
been  given.  Upon  the  facts  stated  and  assumed,  the  increase  of  risk, 
if  there  was  one,  continued  for  fifteen  months,  and  could  not  be 
treated  as  a  casual,  inadvertent,  or  inevitable  thing. 

Exceptions  sustained.* 

'  The  use,  near  the  insured  property,  of  a  corn-sheller  with  and  engine  an 
boiler  to  propel  it,  is  a  change  in  exposure  within  the  clause  '  change  in  the 
exposure,  by  the  erection  or  occupation  of  adjacent  buildings,  or  by  any  means 
whatever  within  the  control  and  knowledge  of  the  insured;"  the  irial  court 
having  erroneously  construed  the  exposure  contemplated  by  ihe  clause  to  be  an 
exposure  arising  by  erection  of  a  permanent  structure,  or  by  change  in  the  use 
of  an  existing  adjacent  structure.  —  Davis  v.  Ins.  Co.,  81  la.  496.  See  also 
Washington  Mut.  Ins.  Co.  v.  Ins.  Co.,  5  Ohio  St.  450. 

\n  Jattvrin  v.  Ins.  Co.,  46  Atl.  Rep.  686,  (N.  H.),  where  there  was  a  clause  in 
the  policy  making  it  void  if  the  "  situation  or  circumstances  affecting  the  risk 
shall,  with  the  knowledge  of  the  insured  be  so  altered  as  to  cause  an  increase 
of  such  risk,"  a  third  party  erected  upon  his  own  land,  but  near  the  property 
insured,  a  building  which  was  used  as  a  grocery  store  and  public  hall.  At  the 
date  of  the  policy  the  other  exposures  were  farm  risks  or  dwellings.  The  court 
said:  "  The  effect  of  the  provision,  when  there  is  a  substantial  increase  of  the 
risk  known  to  the  assured,  is  to  invalidate  the  policy  unless  the  company  assent 
to  the  changed  conditions.  Although  this  construction  avoids  the  policy  by 
reason  of  the  acts  of  persons  other  than  the  assured,  and  in  respect  to  property 
other  than  that  insured,  yet,  where  the  stipulations  of  the  contract  plainly  so 
provide,  it  has  been  upheld  in  this  and  other  jurisdictions."  It  was  held  to  be  a 
question  foi  the  jury  whether  the  risk  had  been  thereby  increased. 

LAW  OF  INSURANCE  —  lO 


146  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

2.   Other  Insurance. 
TURNER  V.  MERIDAiN   FIRE  INSURANCE  CO. 

16  Fkd.  454  (Circuit  Ct.,  Dist.  R.  I.).  —  1883. 

Before  Lowell  and  Colt,  JJ. 

Colt,  J. — On  July  9,  1S79,  the  defendant  issued  a  policy  of 
insurance  to  the  plaintiff,  running  for  five  years.  Afterwards,  on 
November  15,  1880,  the  plaintiff  took  out  another  policy  for  five 
years,  covering  the  same  property,  in  the  Springfield  Fire  &  Marine 
Insurance  Company.  The  property  was  destroyed  by  fire  March  8, 
1881.  Both  policies  contained  a  provision  that  they  should  be  void 
in  case  the  insured  "  shall  have  or  shall  hereafter  make  any  other 
insurance  on  the  property,"  without  the  written  consent  of  the  com- 
pany. No  notice  was  given  of  other  insurance  to  either  company, 
nor  was  the  fact  discovered  until  after  the  fire.  The  Springfield 
Company,  on  learning  that  the  plaintiff  had  another  policy  in  the 
defendant  company,  declined  to  pay  the  loss.  Afterwards,  in  Octo- 
ber, 1881,  the  Springfield  policy  was  surrendered  and  canceled  on 
payment  of  $200  to  the  plaintiff.  The  company,  however,  always 
denied  any  legal  liabilty.  The  defendant  also  refused  payment  of 
its  policy,  on  the  ground  of  subsequent  insurance  in  the  Springfield 
company,  and  false  swearing  in  relation  thereto  in  the  proofs  of 
loss.  This  suit  was  brought  in  February,  1882,  in  the  Rhode  Island 
State  Court,  and  afterwards  removed  here,  'I'he  case  was  heard  by 
the  court,  jury  trial  having  been  waived. 

The  main  question  to  be  determined  upon  this  motion  is  whether 
the  defendant  company  can  hold  its  policy  to  be  invalid  by  reason 
of  the  subsequent  policy  taken  out  in  the  Springfield  Company. 
What  constitutes  other  insurance,  within  the  meaning  of  this  con- 
dition in  insurance  policies,  is  a  question  upon  which  courts  have 
widely  differed.  The  doctrine  laid  down  by  the  highest  tribunals  of 
Massachusetts  and  some  other  States  is  that  the  subsequent  insur- 
ance being  invalid,  at  the  time  of  loss,  by  reason  of  the  breach  of 
condition  therein,  the  prior  insurance  is  good,  even  though  the 
second  company  waive  the  forfeiture  and  pay  its  policy  in  full. 
Thomas  v.  Builder's  Ins.  Co.,  119  Mass.  121;  Jackson  v.  Mass.  Fire 
Ins.  Co.,  23  Pick.  418;  Clarke  v.  Netu  England  Fire  Ins.  Co.,  6  Cush. 
342;  Hardy  v.  Union  Ins.  Co.,  4  Allen,  217;  Lindley  v.  Union  Ins. 
Co.,  65  Me  368;  Philbrook  v.  Ne-iv  England  Fire  Ins.  Co.,  37  Me, 
137;  Gee  V.  Cheshire  Co.  Ins.  Co.,  55  N.  H.  65;  Gale  v.  Ins.  Co.,  41 
N.  H.  170;  Schenck  v.  Mercer  Co.  Ins.  Co.,  4  Zab.  447;  Jersey  City 
Ins.  Co.  V.  Nichol,  Am.  Law  Reg.,  Sept  ,  1882,  p.  620;  Stacey  v. 
Franklin  Ins.  Co.,  2  Watts  &  S.  506;  Sutherland  v .  Old  Dominion  Ins. 


TERMS   OF   THE   FIRE   INSURANCE   CONTRACT.  147 

Co.,  8  Ins.  Lid'  J.  181,  (Va.  Ct.  of  Appeals);  Ins.  Co.  v.  Holt,  35 
Ohio  St.  189";  Knight  v.  Eureka  Ins.  Co.,  26  Ohio  St.  664;  Rising 
Sun  Ins.  Co.  v.  Slaughter,  20  Ind.  520;  Allison  v.  Fhcenix  Ins.  Co.,  3 
Dill.  480.  On  the  contrary  it  is  held,  elsewhere,  that  a  subsequent 
policy,  whether  legally  enforceable  or  not,  or  whether  voidable  on 
its  face  or  voidable  for  extrinsic  matter,  works  a  forfeiture  of  the 
prior  policy.  Somerfield  v.  Ins.  Co.,  8  Lea,  547;  Funke  v.  Minnesota 
Farmers  Ins.  Ass'n,  15  Rep.  114,  29  Minn.  347;  s.  c,  13  N.  W. 
Rep.  164;  Suggs  v.  Liverpool,  London  &=  Globe  Ins.  Co.,  9  Ins. 
Law  J.  657,  (Ky.  Ct.  of  Appeals);  Allen  v.  Merchants''  Ins.  Co.., 
30  La.  Ann.  1386;  Lackey  v.  Georgia  Home  Ins.  Co.,  42  Ga. 
456;  Bigler  v.  N.  V.  Cent.  Ins.  Co.,  22  N.  Y.  402;  Landers  v.  Water- 
town  Ins.  Co.,  86  N.  Y.  414;  Carpenter  v.  Providence  Washington 
Ins.  Co.,  r6  Pet.  495;  Jacobs  v.  Equitable  Ins.  Co.,  19  U.  C.  Q.  B. 
250;  Ramsey,  etc.,  Co.  v.  Ins.  Co.,  11  U.  C  Q.  B,  516;  Mason  v, 
Ins.  Co.,  37  U.  C.  C.  P.  47;  Royal  Ins.  Co.  v.  McCrea,  8  Lea,  531; 
Equitable  Ins.  Co.  v.  McCrea,  Id.  541. 

There  is  still  another  view  taken  by  the  Supreme  Court  of  Iowa, 
in  the  case  of  Hubbard  v.  Hartford  Fire  Ins.  Co.,  33  Iowa,  325,  to 
the  effect  that  the  question  of  recovery  under  the  prior  policy  turns 
upon  whether  the  subsequent  policy  has  been  in  fact  avoided.  If 
the  subsequent  policy  is  recognized  by  the  company  issuing  it  as  a 
valid  policy,  any  breach  of  condition  being  waived,  this  makes  it  a 
valid  insurance,  and  constitutes  it  a  good  defense  to  an  action  upon 
the  prior  policy;  but  if  the  subsequent  policy  has  been  avoided  by 
the  company,  there  is  no  other  insurance,  so  as  to  defeat  a  recovery 
on  the  prior  policy.  Although  at  first  this  reasoning  may  strike  the 
mind  as  a  fair  compromise  between  the  other  conflicting  positions 
taken  upon  this  question,  it  is  a  subject  of  such  grave  objections 
that  it  cannot  be  considered  tenable. 

If  the  condition  in  the  first  policy  was  violated,  it  was  done  at  the 
time  the  second  contract  of  insurance  was  entered  into,  and  the 
subsequent  affirmance  or  disaffirmance  of  the  second  contract, 
should  not  affect  the  validity  of  the  first.  The  validity  of  the  first 
contract  can  hardly  turn  upon  what  a  stranger  to  it  may  do  with 
reference  to  another  contract,  even  after  liabilty  upon  the  first 
contract  has  become  absolute  by  a  destruction  of  the  property. 
Funke  V.  Minnesota  Farmers'  Ins.  Ass'n,  supra. 

At  the  trial  of  the  cause  it  seemed  as  if  the  weight  of  authority 
was  in  favor  of  holding  the  prior  policy  good  upon  the  ground  that 
the  subsequent  policy  was  invalid,  and  this  position  had  been  held 
by  Judge  Dillon  in  Allison  v.  Phcenix  Ins.  Co  ,  3  Dill.  480,  not 
to  be  in  conflict  with  the  real  point  in  judgment    in    Carpenter   v. 


148  THE    TERMS   OF   THE    INSURANCE   CONTRACT. 

Providence  \Vashiih:;toii  Ins.  Co.,  16  Pet.  495;  but  upon  further  con- 
sideration of  all  the  authorities,  and  the  principles  which  govern 
them,  we  cannot  adopt  this  view. 

This  construction  is  open  to  the  objection  thai  the  insured  may 
collect  both  policies.  It  is  also  subject  to  the  criticism  that,  in 
deciding  upon  the  validity  of  one  contract,  the  court,  in  the  same 
action,  must  go  outside  of  it,  and  determine,  first,  the  validity  of 
one  or  more  independent  contracts,  involving  perhaps,  an  inquiry 
into  complicated  questions  of  fact  respecting  those  contracts. 
Rova!  Ins.  Co.  v.  McCrea,  8  Lea,  538.  But  further  than  this  the 
principle  upon  which  this  construction  is  founded  does  not  appear 
to  be  satisfactory.  The  reasoning  in  these  cases  is  based  largely 
on  the  assumption  that  the  second  policy  is  void  by  reason  of  the 
breach  of  condition  therein,  and  that  the  issuing  of  such  a  void 
policy  is  no  violation  of  the  condition  as  to  other  insurance  in  the 
first  policy.  But  is  not  this  assumption  too  broad?  Is  it  legally 
true  that  the  second  policy  is  a  void  contract?  Conditions  of  this 
character  in  insurance  policies  are  inserted  for  the  benefit  of  the 
insurer,  and  their  violation  does  not  render  the  policy  void,  but  only 
voidable  at  the  election  of  the  insurer.  It  is  still  a  binding  con- 
tract upon  the  insured.  He  can  take  no  advantage  of  this  breach 
of  condition,  and  the  insurer  could  still  enforce  the  contract  against 
him  if  anything  was  to  be  gained  by  so  doing.  "  Although  the 
policy  by  its  terms  provides  that  it  shall  be  void  on  a  breach  of  any 
of  its  conditions,  its  legal  effect  is  simply  to  render  it  voidable  at 
the  election  of  the  insurer,  and  that  the  insurer  can  waive  the  for- 
feiture and  continue  the  policy  in  force;  or,  to  state  the  proposi- 
tion more  broadly,  in  all  contracts  where  the  stipulations  avoiding 
the  same  are  inserted  for  the  sole  benefit  of  one  of  the  par- 
ties, the  word  '  void  '  is  to  be  construed  as  though  the  contract 
read  'voidable.'  This  view  seems  to  be  sound  in -principle,  just 
in  practice,  and  is  certainly  well  sustained  by  authority."  Masonic 
Mitt.  Benefit  Society  v.  Beck,  (Sup.  Ct.  01  Indiana);  11  Ins.  Law  J. 
Oct.  1882,  p.  755;  Armstrong  v.  Turquand,  9  Irish  C.  L.  32;  s.  c,  3 
Life  &  Ace.  R.  350.  The  party  in  default  cannot  defeat  the  con- 
tract. Viele  V.  Germania  Ins.  Co.,  26  Iowa,  i  The  policy  is  merely 
voidable,  and  may  be  avoided  by  the  underwriters  upon  due  proof 
of  facts,  but  until  so  avoided  it  must  be  treated  for  all  practical  pur- 
poses as  a  subsisting  policy.  Carpenter  v.  Providetice  Washington 
Ins.  Co.,  16  Pet.  495.  See,  also,  Baer  v.  Pha-nix  Ins.  Co.,  4  Bush, 
242,  and  authorities  before  cited.  The  doctrine  of  waiver  as  applied 
to  conditions  in  policies  of  insurance,  and  which  is  invoked  so  fre- 
quently, is  founded,  in  part  at  least,  upon  the  theory  that  breach 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  I49 

of  condition  only  renders  the  policy  voidable.  The  same  principle 
prevails  as  to  conditions  in  leases  where  the  term  "  void  "  is  used. 
The  leases  become  void  only  by  the  lessor's  electing  to  treat  it  so, 
and  not  by  the  mere  happening  of  the  breach,  and  modern  decisions 
have  quite  exploded  the  old  distinction  in  this  respect  between 
leases  for  years  and  for  life.  Vide  v.  Gemiauia  Ins.  Co.,  26  Iowa, 
70,  note;  Taylor,  Landl.  &  Ten.,  §  492.  As  the  second  policy  is 
Lot  a  void  contract,  but  only  voidable  at  the  election  of  the  com- 
pany, as  it  is  a  contract  entered  into  by  the  insured,  and  which  he 
cannot  dispute,  and  as  the  reason,  if  any,  why  he  cannot  legally 
enforce  it  arises  from  his  own  neglect  or  misrepresentation,  may  it 
not  be  fairly  claimed  that  this  is  other  insurance  within  the  meaning 
tnd  intent  of  the  condition  in  the  first  policy?  We  think  the  rule, 
supported  as  it  is  by  authorities  of  great  weight,  which  holds  the 
taking  out  of  a  voidable  policy  a  violation  of  the  provisions  respect- 
ing other  insurance  in  the  first  policy,  the  best  one,  and  subject  to 
less  serious  objections  than  any  other. 

What  was  the  position  of  this  plaintiff  at  the  time  of  the  loss? 
He  had  one  policy  of  insurance  in  the  defendant  company,  and  he 
had  another  policy  of  later  date  in  the  Springfield  Company. 
This  second  policy  was  issued  in  good  faith  by  the  Springfield  Com- 
pany and  the  premium  paid.  Tt  was  a  policy,  the  validity  of  which 
the  plaintiff  could  not  deny,  and  upon  which  he  obtained  $200  by 
way  of  compromise.  It  seems  to  us  that  upon  any  fair  rule  of 
interpretation  this  must  be  considered  a  breach  of  the  condition  as 
to  other  insurance  in  the  defendant's  policy.  We  cannot  bring  our 
minds  to  assent  to  the  proposition  that  a  subsequent  contract  of 
insurance,  binding  upon  the  assured,  and  which  the  company  may 
pay  in  full  or  in  part  is  no  violation  of  the  first  policy.  We  believe 
the  general  rule,  that  conditions  in  insurance  policies  inserted  for 
the  benefit  of  the  company  should  be  strictly  construed  against  it, 
to  be  a  sound  one,  and  we  do  not  think  our  conclusion  in  this  case 
inconsistent  with  this  doctrine;  at  the  same  time  we  should  bear  in 
mind  that  this  condition  is  a  reasonable  one,  in  that  it  is  of  great 
consequence  to  the  insurer  as  a  protection  against  fraud  to  know 
whether  other  insurance  exists;  and  it  is  said,  therefore,  that  this 
provision  is  not  regarded  with  the  jealousy  due  to  other  provisions 
which  work  a  forfeiture,  but  is  upheld  as  a  fair  and  just  provision 
for  a  reasonable  and  proper  purpose.     May  Ins.,  §  346. 

New  trial  granted.' 

'"  But  it  is  insisted  that  by  a  second  policy  on  the  same  property,  effected 
without  notice  to,  or  the  assent  of,  the  first  underwriter,  the  insurer  may  believe 
he  has  obtained  an  over-insurance  whereby  the  temptation  to  carelessness,  if  not 


150  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

3.     OVKRVALUATION. 

Bradley,  J.,  in  SMITH  v.  HOME  INSURANCE  CO. 

47  Hi-N.  (N.  Y.)  30. —  1888. 

The  policy  was  issued  by  one  Farnam,  the  defendant's  agent,  at 
Warsaw,  N.  Y.,  upon  an  application  obtained  by  one  Randall,  acting 
as  solicitor.  In  the  application  signed  by  the  plaintiff  is  his  cove- 
nant that  the  statements,  valuation,  description  and  survey  in  it  are 

to  incendiarism,  on  his  pari,  will  be  greatly  increased  to  the  prejudice  and  prob- 
able loss  of  the  insurer;  and,  to  use  the  language  employed  in  The  Phoenix  Ins. 
Co.  V.  Lamar,  106  Ind.  515,  if  a  recovery  be  allowed  on  the  first  policy  it  "  affords 
the  anomalous  spectacle  of  an  insured  avoiding  the  effect  of  apparent  over- 
insurance  and  compelling  payment  of  one  policy  by  exhibiting  his  own  turpi- 
tude in  obtaining  another."  But  the  obvious  vice  of  this  position  consists  in 
its  assumption,  without  proof,  that  the  assured  has  acted  in  bad  faith  and  nec- 
essarily has  been  guilty  of  fraud  in  securing  the  second  insurance.  There  is 
no  warrant  in  the  law  for  making  such  an  assumption  in  the  absence  of  evi- 
dence; Insuranee  Co.  v.  Holt,  35  Ohio  St.  192,  or  for  its  acceptation  as  a  uni- 
versal and  unvarying  rule.  It  is  entirely  possible,  first,  that  two  policies  on  the 
same  property  in  the  hands  of  the  same  individual  will  not  in  fact  create  an 
over-insurance;  secondly,  that  the  assured  may  not  believe  that  the  two  policies 
create  an  over  insurance  even  if  in  fact  they  do;  thirdly,  that  the  second  may 
have  been  procured  with  a  view  of  discontinuing  the  first,  whilst  the  loss  inter- 
venes before  the  actual  cancellation  of  the  earlier  one ;  and  fourthly,  that  though 
legally  chargeable  with  notice  of  the  prohibition  against  other  insurance,  the 
assured  may  be  in  reality  ignorant  of  its  terms  and  may,  with  a  view  to  secure 
additional  indemnity  whilst  in  absolute  good  faiih  procure  the  subsequent 
policy.  In  any  one  of  these  contingencies  it  would  be  going  beyond  a  legitimate 
presumption  to  hold  inexorably  that  fraud  or  turpitude  tainted  the  conduct  of 
the  assured."  —  Sweeting  v.  Ins.  Co.,  83  Md.  63,  74. 

The  New  York  standard  policy  provides  (line  12)  against  other  insurance 
'  whether  valid  or  not." 

"  The  provision  of  this  policy  involved  in  behalf  of  this  claim  is  as  follows: 
'  If  the  assured,  or  any  oiher  person  or  parties  interested,  shall  have  existing 
during  the  continuance  of  this  policy  any  other  contract  or  agreement  for  insur- 
ance (whether  valid  or  not)  against  loss  or  damage  by  fire  on  the  property  hereby 
insured,  or  any  part  thereof,  not  consented  to  by  this  company  in  writing,  and 
mentioned  in  or  indorsed  upon  this  policy,  then  this  insurance  shall  be  void  and 
of  no  effect.'  *  *  *  The  designation,  '  any  other  person  or  parties  inter- 
ested,' includes  only  persons  or  parties  interested  in  the  insurance  merely. 
Acer  V.  Insurance  Co.,  57  Barb.  68.  The  expression,  '  any  other  contract  or 
agreement  for  insurance,'  found  in  this  policy,  does  not  apply  to  insurance 
procured  by  a  third  person  without  the  knowledge  and  consent  of  the  assured, 
said  third  person  having  or  claiming  an  insurable  interest  in  the  property,  and 
no  interest  in  the  policy  issued  to  the  assured.  May,  Ins.,  §  372;  2  Wood,  Ins., 
§  377;  Insurance  Co.  v.  Tyler,  16  Wend.  385;  Insurance  Co.  v.  Hone,  2  N.  Y.  235; 
Burton  v.  Insurance  Co.,  14  U,  C.  Q.  B.  342."  —  Niagara  Ins.  Co.  v.  Scammon, 
28  N.  E.  919,  922,  144  111.  490,  499. 


TERMS   OF   THE   FIRE   INSURANCE   CONTRACT.  151 

true  and  correct,  and  are  sabmitted  as  his  warranty  and  a  basis  for 
the  desired  insurance.  And  the  policy  provides  that  such  application, 
survey,  plan  and  description,  were  considered  part  of  the  contract, 
and  a  warranty  by  the  assured,  and  that  any  false  representa- 
tions by  the  assured  of  the  condition,  situation  or  occupancy  of  the 
property,  or  any  omission  to  make  known  every  fact  material  to  the 
risk  or  an  overvaluation  or  any  misrepresentation  whatever,  either 
in  the  written  application  or  otherwise,  would  render  the  policy  void. 
It  is  contended  that  there  was  an  overvaluation  of  the  dwelling- 
house  insured  for  $700,  which  vitiated  the  policy.  The  valuation  of 
this  house,  as  stated  in  the  application,  was  $1,400,  while  the  evidence 
tended  to  prove  that  its  value  did  not  exceed  $1,000.  The  mere  state- 
ment of  the  value  of  property  is  ordinarily  a  matter  of  opinion.  And 
although  in  this  case  the  application  containing  it,  is  part  of  the 
contract  of  insurance,  and  the  statements  contained  in  it,  warranties, 
it  is  difficult  to  apply  it  strictly  to  those  which  are  necessarily  mat- 
ters of  opinion  so  as  to  make  the  validity  of  the  policy  dependent 
upon  the  fact  that  the  opinion  of  the  assured  was  correct.  If  that 
were  so  the  rule  would  require  such  a  result  in  all  such  cases  upon 
the  finding  of  the  jury  that  the  statement  in  that  respect  is  in  excess 
of  the  value  of  the  property  insured,  although  the  fact  should  exist 
in  a  conflict  of  evidence.  Our  attention  is  called  to  no  case  declar- 
ing that  doctrine  to  the  extent  claimed  for  it  by  the  defendant's 
counsel.  And  in  analogy  to  the  familiar  rule  on  the  subject  it  would 
seem  that  the  mere  statement  of  that  which  is  necessarily,  from  its 
nature,  matter  of  opinion,  is  not  strictly  within  the  term  warran- 
ties as  applied  even  to  a  contract  of  insurance.  Van  Epps\.  Har- 
rison^ 5  Hill,  69;  Dacey  v,  Agrl  Ins.  Co.,  21  Hun,  83.  And  that  the 
statement  of  value  in  such  an  application  is  not  effectual  as  an 
overvaluation  to  defeat  liability  unless  it  is  grossly  or  designedly 
excessive.  Redferd  v.  Mi4t.  Fire  Ins.  Co.,  38  Up.  Can.  (Q.  B.)  538; 
Ins.  Co.  of  N.  Am.  v.  AIcDowcll,  50  111.  120.'  In  this  case  the  value 
stated  in  the  application  is  not  so  excessive  as  to  require  the  conclu- 
sion as  matter  of  law,  that  it  was  an  overvaluation  within  the 
meaning  of  the  warranty,  but  the  question  in  such  case  whether  it 
was  designedly  excessive  on  the  part  of  the  plaintiff  may  be  prop- 
erly for  the  jury  to  bring  it,  as  a  false  representation,  within  the 
warranty.  But  this  house  was  not  burned  and  it  is  not  made  the 
subject  of  claim  in  this  action.  Although  in  some  of  the  States  it 
is  held  that,  where  a  policy  of  insurance  covers  different  kinds  of 

^Accord  in  the   case   of  valued    policies,    Vergeront  v.  Co.,  86   Wis.   425,  426; 
Cushman  v.  Co.,  34  Me.  487,  495. 


152  THE   TERM?   OF  THE   INSURANCE   CONTRACT. 

property,  the  contract  is  entire  altliough  the  valuation  and  amounts 
of  insurance  are  severally  applied  to  the  different  classes  of  property 
and  that  a  breach  of  the  warranty  as  to  any  portion  of  the  subject 
of  insurance  vitiates  the  policy  as  a  whole,  especially  when  the  con- 
sideration expressed  is  entire;  that,  however,  is  not  the  doctrine  of 
this  State  as  applied  to  contracts  of  insurance.  And  this  is  the 
general  rule  applicable  to  contracts.  Merrill  v.  Agricultural  Ins. 
^"■>  73  ^'-  ^-  452;  Schuster  v.  Dutchess  Co.  Ins.  Co.,  102  id.  260; 
Woodward  \\  Republic  Fire  Ins.  Co.,  12  Hun,  365,  373.  The  ques- 
tion of  the  effect  of  the  policy  upon  the  statement  of  excessive  value 
of  the  house,  if  made  fraudulently  or  with  evil  intent  for  any  pur- 
pose, requires  no  consideration.  While  the  use  to  which  the  fact 
would  be  entitled,  if  found,  was  a  question  of  law  for  the  court; 
whether  or  not  such  was  the  fact,  was  for  the  jury  to  find.  No 
request  was  made  to  submit  it  to  them,  and  no  exception  appears 
by  the  record  presenting  the  question  in  that  view.     *     *     * 


4.  Ownership. 
IMPERIAL  FIRE  INSURANCE   CO.  z^.  DUNHAM. 

117  Pa.  460.  —  1888. 

Cl.4RK,  J  *  *  *  The  insurance  company  further  contends, 
however,  that  Seeley,  at  the  time  the  insurance  was  effected, 
was  not  the  absolute  owner  of  the  premises  insured.  By  the 
second  condition  of  the  policy  it  is  provided,  that,  "  if  the  inter- 
est of  the  assured  be  other  than  the  entire,  unconditional,  and 
sole  ownership,  or  if  the  property  insured  be  a  building  standing  on 
■ground  not  owned  by  the  assured  in  fee  simple,"  the  policy  shall 
be  void  and  of  no  effect.  On  April  21,  1880,  O.  A.  Seeley,  by 
agreement  in  writing,  purchased  the  lands  in  question  from  T. 
Smull's  Sons;  the  consideration  of  his  purchase  was  $5, 129.50,  pay- 
able in  three  equal  annual  payments,  the  first  installment  becoming 
due  December  i,  1880.  On  November  11,  1881,  T.  Smull's  Sons 
conveyed  the  legal  title  and  assigned  the  Seeley  contract  to  F.  T. 
Page,  the  effect  of  which  was  merely  to  put  Page  in  the  place  of  T. 
Smull's  Sons  as  to  Seeley  On  February  8,  1883,  the  policy  in  suit 
was  issued  to  Seeley.  There  is  no  evidence  that  Seeley  paid  any 
part  of  the  purchase-money;  he  erected  a  sawmill,  however,  and 
made  other  improvements,  and  it  is  claimed  that  his  interest  in  the 
land  was  greatly  enhanced   thereby  at  the   time   the  insurance  was 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  1 53 

effected.  O.i  March  29,  1883,  Seeley,  by  contract  in  writing,  assigned 
his  interest  under  the  contract  with  T.  Smuil's  Sons  to  Page,  who 
thereupon  at  the  same  time  sold  by  articles  to  Henry  Dunham. 
The  consideration  of  the  last-mentioned  sale  was  $10,000;  Page  to 
receive  $5,759.18,  being  the  balance,  with  interest  unpaid,  on  the 
contract  between  T.  Smuil's  Sons  and  Seeley;  the  residue  being 
$4,240.82,  to  be  paid  to  and  received  by  Seeley.  There  was  a  reser- 
vation of  the  title  to  certain  timber  and  bark  until  the  purchase- 
money  was  paid,  an  arrangement  to  apply  part  of  the  proceeds 
thereof  to  the  purchase-money,  and  a  provision  that  in  the  event  of 
Dunham's  failure  to  fufiU  his  contract,  Seeley  would  resume  his 
former  relation  to  Page  under  the  Smull  contract.  But  we  find 
nothing  in  the  details  of  the  several  contracts  of  March  29,  1883, 
to  vary  the  question  already  stated,  viz.:  whether  or  not  Seeley's 
interest  in  the  property  insured  was  such  as  was  required  by  his 
contract  with  the  company.  Where  the  title  to  property  passes, 
and  the  policy  is  assigned  to  the  vendee  with  the  insurer's  consent, 
the  policy  has  sometimes  been  treated  as  a  new  contract  with  the 
vendee.  Wood  on  Ins.,  §  no.  But,  under  the  decisions  of  this 
court,  the  assignee  has  always  been  held  to  take  subject  to  all  the 
stipulations  contained  in  the  policy,  and  in  an  action  by  the  assignee, 
the  question  of  interest  to  be  referable  to  the  time  of  the  issuing  of 
the  policy.  State  Mut.  Co.  v.  Roberts.,  31  Pa.  438;  Lycoming  Co. 
V.  Mitchell,  48  Pa.  367. 

At  the  time  the  insurance  was  effected,  Seeley,  as  we  have  said, 
had  become  the  purchaser  in  fee  of  the  property,  under  articles  of 
agreement  with  T.  Smuil's  Sons;  he  had  the  equitable  title  only, 
bat  he  was  to  all  intents  and  purposes  the  "  owner  "  of  the  prop- 
erly; he  was  the  equitable  owner  in  fee,  and,  in  respect  to  the  insur- 
ance, we  think  he  may  be  said  to  have  been  the  entire,  uncondi- 
tional, and  sole  owner.  This  provision  of  the  policy  does  not 
necessarily  distinguish  between  the  legal  and  the  equitable  estate. 
If  the  title  is  conditional  or  contingent,  if  it  is  for  years  only,  or  for 
life,  or  in  common,  it  is  not  the  entire,  unconditional,  and  sole 
ownership;  but  the  interest  is  the  same,  as  it  affects  the  contract  of 
insurance,  whether  the  title  of  the  assured  be  legal  or  equitable. 
The  purpose  of  this  provision  is,  to  prevent  a  party  who  holds  an 
undivided  or  contingent  but  insurable  interest  in  property,  from 
appropriating  to  his  own  use  the  proceeds  of  a  policy,  taken  upon 
the  valuation  of  the  entire  and  unconditional  title,  as  if  he  were  the 
sole  owner,  and  to  remove  from  him  the  temptation  to  perpetrate 
fraud  and  crime.  For  without  this,  a  person  might  thus  be  enabled 
to    exceed    the  measure   of  an   actual   indemnity.     But  where  the 


154  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

entire  loss,  if  the  property  is  destroyed  by  fire,  must  fall  upon  the 
party  insured,  the  reason  and  purpose  of  this  provision  does  not 
seem  to  exist;  and  in  the  absence  of  any  particular  inquiry  as  to  the 
specific  nature  of  the  title,  or  of  any  express  stipulation  in  the  policy 
that  the  insured  held  the  legal  or  equitable  title,  either  being  avail- 
able to  secure  an  entire  unconditional  and  sole  ownership,  the  pro- 
vision referred  to  can,  we  think,  have  no  force  to  defeat  the  plaintiff's 
recovery  in  this  case. 

Where  articles  of  agreement  are  entered  into  for  the  sale  of  Ian  . 
the  purchaser  is  considered  the  owner.  "  It  does  not  seem  to  f. 
necessary  to  produce  this  effect,  that  any  part  of  the  purchas'  - 
money  should  be  paid,  it  results  from  the  contract.  When  a  par: 
of  the  purchase-money  is  paid,  the  interest  of  the  purchaser  in  the 
land  is  not  circumscribed  by  the  extent  of  the  money  paid,  but 
embraces  the  entire  value  of  the  land  over  and  above  the  purchase- 
money  due.  He  is  treated  as  the  owner  of  the  whole  estate,  incum- 
bered only  by  the  purchase-money.  If  the  land  increases  in  value, 
it  is  his  gain;  if  it  decrease,  if  improvements  are  destroyed  by  fire, 
or  otherwise,  it  is  his  loss."  Si'fer,  James  &=  Co." s  Appeal,  26  Pa.  180. 
WMiere  the  vendor  retains  the  legal  title  he  has  a  lien  for  the  unpaid 
purchase-money,  Zerdjy  v.  Zerby,  9  W.  234;  Bradley  v.  O'  Don?iell,  32 
Pa.  279;  Zeigler's  Appeal,  69  Pa.  471;  but  he  may  use  the  legal 
title  to  compel  payment  thereof.  Thompson  v.  Carpenter,  4  Pa.  132; 
Woodward  v.    Tudor,   81    Pa.  382;    Washabaugh    v.    Stauffer,   81    Pa. 

497- 

We  are  of  the  opinion,  upon  a  full  examination  of  this  case  in  the 
light  of  all  the  authorities,  that  Seeley's  title,  under  his  contract, 
must  be  regarded  as  an  equivalent  to  a  fee  simple;  that  the  unpaid 
purchase-money  must  be  treated  as  an  incumbrance  upon  it ;  and  that, 
in  respect  of  the  insurance,  he  must  be  considered  the  entire,  uncon- 
ditional, and  sole  owner.  The  previous  decisions  of  this  court  will 
justify  no  other  conclusion;  and  the  cases  in  the  other  States,  and 
the  views  of  the  text  writers,  we  find  to  be  in  harmony  with  our 
own. 

The  judgment  is  affirmed.' 


'  In  Clay  Ins.  Co.  v.  Huron  Co.,  31  Mich.  346,  it  was  held  that  ihe  vendor  in  a 
land  contract  was  not  the  unconditional  and  sole  owner  contemplated  by  the 
policy,  the  vendee  having  gone  into  possession  and  paid  the  purchase  price.  In 
Davis  v.  Furniture  Co.,  io2  Wis.  394,  the  owner  of  an  estate  in  fee  upon  con- 
dition subsequent,  who  was  in  possession,  with  no  condition  broken,  and  for 
whom  there  had  also  been  deposited  a  deed  in  escrow,  to  oe  delivered  upon  the 
performance  of  the  condition,  was  held  to  be  the  sole  and  unconditional  owner 
within  the  meaning  of  the  policy. 


TERMS   OF   THE    FIRE    INSURANCE    CONTRACT.  1 55 

5.  Alienation. 
LOY  V.  HOME  INSURANCE  CO. 

24  Minn.  315.  —  1877. 

Cornell  J,  —  The  policy  on  which  this  action  is  brought  contains 
the  following  among  other  conditions:  "  If  the  property  be  sold  or 
transferred,  or  any  change  takes  place  in  title  or  possession  (except 
by  reason  of  the  death  of  the  insured),  whether  by  legal  process  or 
judicial  decree,  or  voluntary  transfer  or  conveyance,  *  *  *  xh\^ 
policy  shall  be  void." 

The  property  insured  consisted  of  a  dwelling-house,  and  certain 
furniture  and  wearing  apparel  therein  contained,  situate  upon 
premises  belonging  to  the  respondent.  After  the  issuance  of  the 
policy  the  respondent  mortgaged  the  premises,  and  the  same  were 
sold  under  a  power  of  sale,  upon  a  foreclosure  of  the  mortgage,  by 
advertisement,  pursuant  to  the  statute.  After  the  sale  and  before 
the  period  for  redemption  had  expired,  the  loss  occurred,  the 
respondent  still  being  in  possession  of  the  premises. 

The  question  for  consideration  is  whether  this  foreclosure  sale 
was  "  a  sale,  transfer,  or  change  in  title,"  within  the  meaning  of 
the  foregoing  condition,  such  as  avoided  the  policy. 

In  construing  a  condition  of  this  character,  if,  upon  a  considera- 
tion of  the  whole  contract,  it  is  uncertain  whether  the  language  of 
the  stipulation  is  used  in  an  enlarged  or  restricted  sense,  or  if  it  is 
fairly  open  to  two  constructions,  one  of  which  will  uphold  and  the 
other  defeat  the  claim  of  the  insured  to  the  indemnity  which  it  was 
his  object  in  making  the  insurance  to  obtain,  that  should  be  adopted 
which  is  most  favorable  to  the  insured,  and  most  in  harmony  with 
such,  the  main  purpose  of  the  contract  on  his  part.  The  reasons 
for  this  are  two-fold:  the  tendency  of  any  such  stipulation  is  to 
narrow  the  range  and  limit  the  force  of  the  underwriter's  principal 
obligation.  It  is  also  inserted  by  him  for  his  own  benefit  and  in 
language  of  his  own  choice.  If  any  doubt  arises  as  to  its  meaning, 
the  fault  is  his  in  not  making  use  of  more  definite  terms  in  which  to 
express  it;  hence  the  rule  of  strict  construction  against  him,  and 
the  liberal  one  in  favor  of  the  assured,  which  prevail  under  such 
circumstances.  Ho f man  v.. -Etna  Ins.  Co..,  32  N.  Y.  405;  We^tfall 
V.  Hudson  Rii'er  Ins.  Co.,  2  Duer,  495;  Ins.  Co.  v.  Wright,  i  Wall. 
456;    W-st.  Ins.  Co    V.  Crapper,  32  Pa.  St.  351. 

Applying  these  principles,  a  correct  interpretation  of  this  condi- 
tion of  the  policy  would  seem  to  be  attended  with  but  little  difficulty. 
In  the  first  place  it  makes  a  sale  or  transfer  of  the  property  a  cause 
for  avoiding  the  policy.     Within  the  meaning  of  the  stipulation  this 


156  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

refers  to  an  absolute  and  comi->Ieted,  and  not  a  conditional  or  incom- 
plete, sale  or  transfer;  in  other  words,  a  sale  that  wholly  divests 
the  owner  of  the  property  of  all  insurable  interest  therein. 

The  succeeding  clause  which  gives  a  like  effect  to  any  "  change 
in  title,  *  *  *  whether  by  legal  process,  judicial  decree,  or 
voluntary  transfer  or  conveyance,"  has  reference  to  an  absolute 
transfer  of  the  legal  title  in  one  of  these  ways,  though  such  transfer 
as  in  the  case  of  a  conveyance  in  trust,  or  by  a  deed,  absolute  in 
terms,  but  intended  merely  as  a  security,  might  not  operate  to  divest 
the  owner  of  the  property  of  all  his  insurable  interest  therein. 

In  our  judgment  nothing  short  of  a  complete  transfer  of  the  legal 
title  comes  within  the  prohibition  of  this  stipulation.  The  mere 
creation  of  a  lien  or  incumbrance  upon  the  property  insured  cannot 
be  regarded  as  effecting  "  any  change  in  title,"  either  in  the  legal 
sense  or  according  to  the  ordinary  and  popular  understanding.  "  In 
legal  acceptation,"  says  Allen,  J,  in  S.  J^.  &^  M.  Ins.  Co.  v. 'Allen, 
43  N.  Y.  389,  "  title  has  respect  to  that  which  is  the  subject  of 
ownership,  and  is  that  which  is  the  foundation  of  ownership;  and 
with  a  change  of  title,  the  right  of  property,  the  ownership,  passes." 
As  applied  to  real  estate,  it  is  defined  to  be  "  the  means  whereby 
the  owner  of  lands  or  other  real  property  has  the  just  and  legal 
possession  and  enjoyment  of  it;  "  "  the  lawful  cause  or  ground  of 
possessing  that  which  is  ours."     2  Bouv.  Law  Diet.  986. 

In  this  sense,  which  is  also  the  ordinary  and  popular  one  in  which 
the  word  is  used,  a  "  change  in  title  "  is  a  change  in  ownership, 
which  carries  the  legal  right  of  possession  and  property,  and  it  is  in 
this  sense  we  must  understand  the  word  as  having  been  used  in  this 
clause. 

Although  within  the  meaning  of  the  registry  laws  a  mortgage  of 
real  estate  is  defined  to  be  a  conveyance,  yet  under  our  laws  it  is 
not  deemed  a  conveyance  in  the  sense  of  passing  any  estate  or  inter- 
est in  lands,  or  transferring  any  legal  title  thereto.  The  only  inter- 
est which  a  mortgagee  acquires  is  a  lien  upon  the  land  in  way  of 
security,  which,  prior  to  the  foreclosure  of  the  right  of  redemption, 
is  treated  as  personal  property  that  goes  to  the  administrator  or 
executor,  and  not  to  the  heirs.  The  legal  title,  with  the  right  of 
possession,  remains  with  the  mortgagor  until  a  completed  foreclos- 
ure is  had  by  sale,  and  the  same  becomes  absolute  by  the  expiration 
of  the  period  for  redemption  Until  this  time  expires  the  purchaser 
at  the  sale  has  only  a  chattel  and  equitable  interest.  He  has  no 
legal  title  to  the  lands,  nor  any  conveyable  estate  therein.  The 
character  of  his  interest  is  the  same  as  that  of  a  mortgagee  before 
foreclosure  sale.     Gen.   St.,  c.   52,  §   11   Id.,  c.  75,  §  11;  Donnelly 


TERMS   OF   THE    FIRE    INSURANCE    CONTRACT.  1 57 

V.    Sinionton^    7   Minn,    iio   (167);  H or  ton   v.   Maffitt,    14  Minn.    290 
292 

Neither  is  a  foreclosure  by  advertisement  "  legal  process  "  or  a 
"  judicial  decree."  The  proceedings  in  this  kind  of  a  foreclosure 
are  carried  on  wholly  outside  of  court,  and  without  the  aid  of  its 
process  or  decree.  It  is  obvious,  then,  that  neither  the  giving  of 
the  mortgage  nor  the  sale  of  the  premises  on  foreclosure,  the  time 
for  redemption  not  having  expired,  effected  any  change  in  title  or 
possession  in  respect  to  the  property  insured,  and  did  not,  therefore, 
avoid  the  policy. 

Order  affirme  1.' 


*  In  Gibh  v.  Ins.  Co.,  59  Minn.  267,  where  the  policy  provided  that  it  was  to 
become  void  "  if  any  change  other  than  by  the  death  of  an  insured,  take  place 
in  the  interest,  title,  or  possession  of  the  subject  of  insurance,"  etc.,  it  vras  held 
thai  the  word  "  interest  "  is  broader  than  the  word  "  title,"  and  includes  both 
legal  and  equitable  right,  and  that  a  contract  in  writing  to  convey  the  premiss?, 
the  vendee  having  taken  possession  and  paid  part  of  the  purchase  price,  effected 
a  change  of  interest.  Rut  see  Arkansas  Fire  Ins.  Co.  v.  Wilson,  55  S.  W.  933 
(Ark.),  where  the  policy  provided  that  it  was  to  become  void  "  if  the  interest  of 
the  assured  became  other  than  the  entire,  unconditional,  unincumbered  and 
sole  ownership,"  etc.,  and  it  was  held  that  a  contract  in  writing  to  convey  the 
premises,  under  which  the  vendee  had  not  taken  possession  did  not  avoid  the 
policv;  the  word  "  interest  "  being  construed  in  this  clause  as  being  synony- 
mous with  "  title." 

A  pro»'ision  in  the  policy  against  a  change  of  inierest  or  title  of  the  insured 
properly  does  not  apply  to  a  transfer  by  one  partner  to  another  of  his  inter- 
est in  the  insured  partnership  property.  See  Phenix  Ins.  Co.  v.  Holco»tbe,  57 
Neb.  622,  and  cases  there  cited. 

In  Walradt  v.  Ins.  Co.,  136  N.  Y.  375,  the  policy  was  to  be  void  in  case  of  any 
change  of  interest,  title,  or  possession,  "  whether  by  legal  process  or  judgment 
or  by  voluntary  act  of  the  insured  or  otherwise,"  etc.  It  was  held  that  a 
levy  upon  the  insured  stock  of  goods  by  the  sheriff,  under  an  execution,  was 
not  a  change  of  interest  or  title  within  the  meaning  of  the  policy,  and  that 
althi)ugh  the  sheriff  look  possession,  yet  the  possession  of  the  property  was  not 
changed  within  the  meaning  of  the  policy  unless  the  occupancy  of  the  place 
where  the  goods  were  was  also  changed  so  as  increase  the  risk.  See  also  Ham- 
mel  V.  Co.,  54  Wis.  72. 

"  The  title  to  property  may  be  changed  by  a  mortgage  and  foreclosure,  but 
it  is  not  either  a  vulgar  or  technical  expression  to  speak  of  a  change  of  title  by 
the  mere  execution  of  a  mortgage.  In  equity,  and  even  at  law,  a  mortgage  is 
not  regarded  as  a  title  to  land.  It  is  considered  a  lien,  or  incumbrance,  which 
may  transfer  the  title  to  the  mortgagee;  but  the  mortgagor  is  regarded  as  the 
owner  until  entry  of  the  mortgagee  or  foreclosure.  We  may  so  readily  imagine 
a  great  variety  of  forms  of  expression  which  would  make  a  policy  void,  if  the 
property  should  be  mortgaged,  that  it  may  be  fairly  inferred,  from  the  use  of 
ihe  phrase,  '  when  the  title  shall  be  changed,'  that  it  was  not  designed  to  include 
a  mere  mortgage."  —  Shepherd  v.  Ins.  Co.,  3S  N.  H.  232,  240. 


158  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

6.   Incumbrances. 
HICKS  V.  THE  FARMERS'  INSURANCE  CO. 
71  Ia.  119.  —  1887. 
Beck,  J.  — The   policy  in   suit   contains   a  condition  that  it  shall 
become  void  "if  the  property  insured  be  sold,  or  any  change  take 
place   in   the   title  thereof,  or   if  the   property  or  any  part  thereof, 
hereafter  in  any  manner  whatever  incumbered. "     The  answer  alleges 
that  plaintiff,  after    the    execution  of  the   policy,  and    before    the 
fire,  incumbered  the  property  insured  by  executing  on  his  interest 
therein,    which   was  one-third,  a  mortgage,   etc.,    and   that   it  was 
i.icumbered  during  the  same  time  by  a  judgment  against  the  plain- 
tiff, which  became  and  has  remained  a  lien  on  the  property.     It  is 
shown  by  the  pleadings  that  the  policy  was  issued  to  a  firm  of  which 
the  plaintiff  is  a  partner,  and  that  the  policy,  after  the  loss,  was 
assigned  to  him.     The  plaintiff  demurs  to  the  answer,  on  the  ground 
that   the  mortgage   and  judgment,  having  been  executed  and  ren- 
dered while  plaintiff  was  one  of  the  partners  to  whom  the  policy  was 
issued,  do   not  constitute   a  breach  of  the  condition  of  the  policy. 
The  property  insured  was  an  office  building  and  furniture  therein. 
The  answer  alleges  that  plaintiff  held  a  one-third  interest  therein, 
and  that  it  was  encumbered  by  the  mortgage  and  judgment.     Surely, 
under  these  allegations,  defendant  would  be  permitted  to  show  both 
a  mortgage  and  judgment  incumbrance  upon  plaintiff's  interest  in  the 
property.     And   that  the   mortgage  and   judgment,  as  they  are  set 
out  in  the  answer,  would  incumber  plaintiff's  interest  in  the  prop- 
erty, there   can   be   no  doubt.     The   petition   alleges   that  plaintiff 
owned  one-third  of  the  property,  and  that  the  mortgage  was  exe- 
cuted upon  that  interest,  and  the  judgment  was  rendered  while  he 
owned   it.     That  liens  were   created  as  against  the  realty  is  very 
plain.     Their  extent  or  the  manner  of  their  enforcement  need  not 
be  a  subject  of  inquiry. 

The  case,  in  our  opinion,  was  rightly  decided  by  the  court  below 

Affirmed.' 

BALEY  V.  HOMESTEAD  FIRE   INSURANCE  CO. 

80  N.  Y.  21.  — 1880. 

This  action  was  brought  upon  a  policy  of  fire  insurance,  issued 
by  defendant  to  plaintiff  upon  his  dwelling-house,  barn,  etc.  The 
policy  contained  a  condition  that  "this"  company  "shall  not  be 

'  Accord,  as  to  judgment  being  an  incumbrance,  Bowman  v.  Ins.  Co.,  40  Md. 
620. 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  I  59 

liable     *    *    *    if  without  written  consent  hereon  the  property  shall 
hereafter  become  incumbered  in  any  way." 

Andrews,  J.  — We  are  of  opinion  that  the  condition  in  the 
policy  that  the  company  shall  not  be  liable  "  if  without  the  con- 
sent of  the  company  written  on  the  policy,  the  property  (insured) 
shall  hereafter  become  incumbered  in  any  way,"  is  to  be  construed 
as  referring  to  incumbrances  created  by  the  act  of  the  insured, 
and  has  no  application  to  incumbrances  by  judgment,  or  otherwise 
/;/  invitiim,  created  by  operation  of  law.  We  think  the  condition 
has  the  same  meaning  as  if  it  had  provi  led  that  the  policy  should 
be  void  if  the  assured  should  in  any  wy  incumber  the  property 
without  the  written  consent  of  the  company.  The  language  used 
implies  that  the  consent  of  the  company  which  will  prevent  the 
avoidance  of  the  policy,  is  to  precede  the  creation  of  the  incum- 
brance. This  condition  of  things  has  no  proper  application  to  the 
case  of  judgments  which  may  be  obtained  by  third  persons  against 
the  insured,  but  only  to  incumbrances  created  by  his  voluntary  act. 
The  provision  for  consent  was  not  intended  primarily  to  relieve  the 
insured  from  a  forfeiture  incurred,  but  to  prevent  the  incurring  of 
a  forfeiture.  It  is  not  reasonable  to  suppose  that  the  parties 
intended  to  provide  for  the  consent  of  the  company  in  advance  to 
the  rendition  of  a  juJgment  against  the  insured  in  favor  of  third 
persons.  If  the  condition  embraces  incumbrances  by  judgment, 
then  in  case  of  an  insurance  upon  real  property  the  moment  a  judg- 
ment is  rendered,  and  the  lien  attaches  to  the  insured  property,  a 
forfeiture  occurs,  and  the  contract  of  insurance  is  at  an  end,  unless 
the  company  consents  to  re-instate  it,  by  waiving  the  forfeiture, 
and  this  too,  although  the  land  cannot  be  sold  on  the  judgment  until 
an  execution  against  personal  property  is  returned  unsatisfied.  If 
mcumbrances  created  by  operation  of  law,  are  within  the  condition, 
the  imposition  of  a  tax  on  the  insured  property  would  create  a 
forfeiture  of  the  insurance,  and  the  result  would  be  that  each  year 
on  the  tax-rolls  being  completed,  and  put  into  the  hands  of  the 
proper  officers,  for  the  collection  of  the  taxes  imposed,  the  insur- 
ances of  the  company  on  real  property  would  be  ipso  facto  termi- 
nated, taxes  being  an  incumbrance  on  the  land  taxed  {Barloiu  v.  St. 
Nicholas  Nat.  Bank.,  63  N.  Y.  399),  and  all  land  not  specially 
exempted  being  liable  to  taxation.  A  construction  tending  to  such 
consequences  must  be  rejected  as  not  within  the  intention  of  the 
parties,  if  another  construction  is  possible  The  condition  ought  to 
be  construed  in  the  same  manner  as  conditions  in  leases  against 
assignments,  and  it  is  well  settled  that  an  assignment  by  operation 
of  law  is  not  a  breach  of  such  condition.     4  Kent,  124. 


l6o  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

The  language  of  the  condition  in  question,  fairly  interpreted, 
does  not  extend  to  incumbrances  created  by  law.  To  so  construe 
it  would  defeat  the  contract  of  insurance  in  cases  which  could  not 
have  been  contemplated.  The  defendant  is  claiming  a  forfeiture. 
When  a  clause  in  a  contract  is  capable  of  two  constructions,  one  of 
which  will  support,  and  the  other  defeat  the  principal  obligation, 
the  former  will  be  preferred.  Forfeitures  are  not  favored,  and  the 
party  claiming  a  forfeiture  will  not  be  permitted,  upon  equivocal  or 
doubtful  clauses,  or  words,  contained  in  his  own  contract,  to  deprive 
the  other  party  of  the  benefit  of  the  right  or  indemnity  for  which  he 
contracted.  \vl  Eganx.  Mutual  Ins.  Co.,^  Denio,  326,  the  condition 
was  to  the  effect  that  the  policy  should  be  void  if  the  insured  should 
suffer  any  judgment,  etc.,  unless  he  notified  the  company  thereof, 
in  which  case,  the  power  was  reserved  by  the  company  to  assent 
thereto,  or  to  cancel  the  policy.  This  was  a  reasonable  provision, 
and  a  defense  founded  thereon  was  sustained  by  the  court,  but  the 
case  has  no  bearing  upon  the  one  now  before  us. 

The  judgment  should  be  affirmed. 

All  concur. 

Judgment  affirmed.' 


STATE  INSURANCE  CO.  v.  SCHRECK. 

27  Neb.  527.  —  1889. 

Reese,  Ch.  J.  —Among  the  defenses  presented  by  the  answer 
v/as  one  that  defendant  in  error  had  by  mortgages  incumbered  the 
property  insured  in  violation  of  the  condition  of  the  policy.  This 
condition  was  as  follows:  "  Any  other  insurance  or  any  incum- 
brance upon  any  of  the  property  hereby  insured  e.xisting  at  the  date 
of  this  policy  not  made  known  in  the  application,  or  if  any  sub- 
sequent incumbrance  is  imposed,  or  title  or  occupancy  changed  or 
hazard  increased  without  the  written  consent  of  the  secretary  of  the 
company,  or  if  the  building  becomes  vacant,  this  policy  shall  be 
void."     *     *     * 


'  In  Penn.  Ins.  Co.  v.  SchmlU.  IIQ  Pa.  St.  449,  it  was  held  that  a  judgmer.t 
entered  upon  a  warrant  of  attorney  was  an  incumbrance. 

Mkchanic's  Lien  In  Green  v.  Ins.  Co.,  82  N.  Y.  517,  it  was  held  ihat  a 
mechanic's  lien,  not  filed  by  the  procurement  of  the  insured,  was  not  an  incum- 
brance within  the  provision  of  the  policy.  —  Contra.  Smith  v.  Ins.  Co.,  106  la. 
225. 


TERMS    OF   THE   FIRE   INSURANCE   CONTRACT.  l6l 

It  was  shown   by   defendant  in  error  upon  the  witness  stand  on 
cross-examination,  that  some  of   the  personal  property  which  had 
been  destroyed  had  at  some  time  or  other  subsequent  to  the  execu- 
tion of  the  policy  had  been  mortgaged,  but  that  at  the  time  of  the 
fire  the  mortgages  had  all  been  paid  and  there  was  no  incumbrance 
upon  the  property.     It  is  now  contended  by  plaintiff  in  error  that 
the  fact  of  the  execution  of  the  mortgage  referred  to  avoided  the 
policy  as  to  the  personal  property.     The  term  of  the  policy  was  five 
years  from  the  date  of  its  execution,  which  was  the  8th  day  of  Sep- 
tember, 1884.     An  examination  of  the  language  hereinbefore  copied 
satisfies  us  that  it  was  not  the  intention  of  the  parties  to  the  con- 
tract to  require  that  the  same  personal  property  should  remain  upon 
the  farm  for  the  whole  term  of  the  policy,  but  that,  as  hereinbefore 
indicated,  it  was  upon  certain  kinds  of  property  upon  the  premises. 
The  second   item  in  the  list  given  is  "  On  beds  and  bedding  while 
therein,  $50;  "  the  third,  "  On  wearing  apparel  while  therein,  $100." 
It  cannot  be  contended  that  it  was  the  purpose  of  the  parties  to  the 
contract  that  the  same  beds  and  bedding  and  wearing  apparel  should 
necessarily  remain  in  that  building  for  five  years  to  secure  the  bene- 
fit of  the  insurance,  but  rather  that  beds  and  bedding  and  wearing 
apparel  while  in   the  building,  without  reference  to  any  particular 
kind  or  quality,  should  receive  the  benefit  of  the  insurance.     The 
same  may  be  said  as  to  the  household  furniture,  the  sewing  machine, 
the  hay  in  the  buildings  or  stack,  the  harness  on  the  farm,  wagon, 
farming  utensils,  and  live  stock.     The  clear  intent  and  purpose  of 
the  parties  was  that  such  as  might  be  worn  out  and  destroyed  might 
be  replaced  ;  that  such  as  it  might  become  necessary  to  sell  might  be 
sold   and   other  stock  purchased  in  its  stead.     The  execution  of  a 
chattel  mortgage  is  a  sale  subject  to  the  conditions  named  in  the 
mortgage.     The  legal  title  is  vested  in  the  mortgagee,  and  it  is  his 
property  subject  alone  to  the  conditions  contained  in  the  mortgage. 
Had  the  property  destroyed  been  sold,  and  the  legal  title  transferred 
to  the  purchaser,  defendant  in  error  could  recover  nothing  for  his 
loss.     Had  it  been  mortgaged  and  the  legal  title  so  transferred,  he 
could  still  recover  nothing.     But,  under  the  plain  sense  of  the  policy, 
had  the  property  been  replaced  by  other  of  the  same  kind  and  spe- 
cies, there  could  be  no  doubt  of  plaintiff's  liability  in  case  of  loss. 
Had  the  contract  of  insurance  been  upon  specific  personal  property, 
it  is  possible  that  the  defense  presented  would  have  been  available. 
However,  that  question   is   not  before  us.     But  we  are  quite  clear 
that  the  transfer  of  the  legal  title  to  the  insured  property,  either  by 
mortgage  or  sale,  would  avoid  the  policy  so  far  only  as  that  particu- 
lar property  was  concerned,  during  the  time  of  the  existence  of  the 

LAW  OF  INSURANCE —  II 


iGz  thl:  terms  of  the  lxsurance  contraci. 

title  in  the  purchaser  or  mortgagee,  and  to  that  extent  only  coulJ 
the  sale  or  mortgaging  of  the  property  under  the  provision  of  this 
policy  be  a  successful  defense.     *     *     *  i 


7.   Prohibited  Articles. 
WHEELER  7>.  TRADERS'   INSURANCE  CO. 

62  \.  H.  450.  —  1883. 

Assumpsit,  on  a  policy  of  insurance  on  the  plaintiff's  woollen  mib 
and  contents. 

The  plaintiff,  for  the  purpose  of  killing  moths  in  some  wool,  car 
ried  into  the  mill  a  barrel  of  naphtha,  drew  some  of  the  liquid  sev- 
eral times  into  a  watering-pot  holding  about  two  quarts,  and 
sprinkled  it  upon  the  wool  at  the  opposite  end  of  the  room  from  the 
cask.  The  fire  broke  out  about  thirt/  feet  from  the  wool,  and 
spread  rapidly  to  it.  Nothing  more  is  known  of  the  origin  of  the 
fire.  The  plaintiff  bought  the  naphtha  (supposing  it  to  be  benzine, 
which  he  had  ordered)  for  the  use  of  destroying  the  moths,  and  he 
intended  to  remove  it  from  the  building  after  sprinkling  the  wool, 
and  use  it  in  cleaning  the  windows,  which  were  to  be  taken  out  of 
the  mill  for  that  purpose. 

Allen,  J.  — The  stipulation  in  the  policy,  that  "  if  the  assured 
shail  keep  or  use  *  *  *  petroleum  naphtha,  gasoline,  benzine, 
benzoic,  or  benzine  varnish,  or  keep  or  use  camphene,  spirit  gas,  or 
any  burning  fluid  or  chemical  oils  without  written  permission  in  this 
policv,  then  and  in  every  such  case  this  policy  is  void,  and  all  insur- 
ance thereunder  shall  immediately  cease  and   determine,"    was    a 

'  Contra:  In  German  Amer.  Ins.  Co.  v.  Humphrey,  62  Ark.  348,  there  was  a  pro. 
vision  in  the  policy  against  incumbrances  by  chattel  mortgage.  The  insurea 
property  (hotel  furniture)  was  mortgaged,  but  before  the  fire,  the  mortgage  hat. 
been  paid.  The  court  said:  "  If  it  be  said  that,  where  the  mortgage  is  paid  off, 
there  is  no  longer  an  incumbrance  and  increase  of  risk,  still  as  to  whether  v,. 
not  the  mortgage  had  hsen  paid  off  would  be  the  question,  and  one  that  of  en 
could  not  be  settled  without  expensive  litigation.  The  insured  mortgagor 
might  enter  into  collusion  with  the  mortgagee  to  defraud  the  insurance  com- 
pany after  the  lo=s  occurred  by  claiming  ihat  the  mortgage  had  been  p»id  off 
and  discharged,  when  in  fact  it  had  not.  Unfortunately,  all  men  are  noi  hon- 
est. Without  some  such  provision  in  the  policy,  the  unscrupulous  wou.J  have 
an  inviting  opportunity,  after  a  loss,  to  divide  the  spoils,  at  the  expen?t  of  the 
insurer.  Doubtless  some  such  considerations  as  these  prompted  the  ^lause  in 
the  policy  under  consideration.  The  clause  is  reasonable  and  clear  and  the 
parties  had  the  right  'o  thus  contract." 


TERMS   OF   THE   FIRE    INSURANCE    CONTRACT.  163 

part  of  the  contract  of  insurance  entered  into  by  the  plaintiff  with 
the  defendants,  without  an)'  apparent  mistake,  deception  or  fraud. 
The  plaintiff  expressly  agreed  that  a  violation  of  the  condition 
should,  of  itself,  be  a  forfeiture  of  all  insurance  under  the  policy. 
Having  voluntarily  entered  into  the  contract  thus  restricted,  the 
plaintiff  cannot  reasonably  complain  of  the  enforcement  of  the  io\- 
feiture  for  a  violation  of  the  condition.  Mead\.  N.  IV.  Ins.  Co..,  7 
N.  Y.  530;  Lee  v.  Howard  Ins.  Co..,  3  Gray,  583;  Kelley  v.  Home  Ins. 
Co..,  97  M.1S0.  288.  There  is  no  ambiguity  in  the  meaning  of  the 
words  used,  or  the  sense  in  which  they  were  employed,  by  which 
the  plaintiff  might  have  the  benefit  of  a  doubt.  Smith  :.  Ins.  Co., 
32  N.  Y.  399.  The  contract  must  be  interpreted  and  the  terms 
used  must  be  defined  in  the  light  of  the  mischief  intended  to  be 
avoided  by  the  restriction.  The  prohibition  of  the  keeping  or  use 
for  any  purpose,  or  for  any  measurable  time,  of  an  article  so  inviting 
to  fire  as  that  described  in  the  case,  was  a  reasonable  prohibition, 
the  violation  of  which,  in  any  degree  and  for  any  time,  would  expose 
the  insured  premises  to  an  extreme  degree  of  danger;  and  to  give 
the  restrictive  clause  in  the  policy  a  construction  which  would  per- 
mit the  introduction  into  the  premises  of  naphtha  or  benzine,  and 
its  use  there  for  any  dangerous  purpose  for  any  time,  would  be  a 
practical  nullification  of  that  part  of  the  contract.  If  it  could  be 
said  that  merely  "  keeping"  it,  not  for  sale,  nor  for  any  general  use 
in  the  business  of  manufacturing,  but  for  temporary  storage,  could 
not  be  within  the  prohibition  intended  by  the  parties  to  the  con- 
tract, certainly  the  "  use  "  made  of  it  was  one  subject  to  the  prohi- 
bition of  the  use  of  an  article  hazardous  to  an  extraordinary  degree, 
if  the  use  of  any  combustible  material  ever  could  be.  The  cases  in 
which  a  disregard  of  the  prohibition  of  keeping  or  using  extraordi- 
narily hazardous  articles  has  not  been  held  to  work  a  forfeiture  of 
the  policy  are  those  where  the  use  made  was  one  incident  to  the 
business  of  the  insured,  adopted  from  necessity  or  custom,  and  rec- 
ognized by  the  insurer,  so  that  a  waiver  of  the  prohibitory  clause 
follort^ed.  Such  cases  are,  — ■  Carlin  v.  Assurance  Co.,  57  MJ.  515, 
in  which  the  prohibited  oil  was,  at  the  time  of  the  insurance,  known 
by  the  insurers  to  be  commonly  used  by  the  insured  to  lubricate 
machinery;  Buchanan  v.  Ins.  Co.,  61  N.  Y.  26,  where  the  oil  was 
known  to  be  commonly  used  for  illuminating  purposes;  and  Whit- 
march  v.  Ins.  Co.,  16  Gray,  359,  in  which  the  inhibited  article  was 
known  to  be  usually  kept  and  dealt  with  as  a  part  of  the  stock  of 
goods  in  a  country  store  insureJ.  The  use  by  the  plaintiff  of  the 
benzioe  or  naphtha  did  not  coma  within  the  doctrine  of  any  of  these 
cases,  nor  was  it  a   use  in  a   small   quantity  as  a   medicine,  or  for 


164  THE    TERMS    OF   THE    INSURANCE   CONTRACT. 

Other  special  and  not  dangerous  purpose,  as  in  Williams  v.  Ins.  Co., 
54  N.  Y.  569. 

The  plaintiff  claims  that  the  policy  was  not  forfeited  by  the  use 
of  the  naphtha,  because  the  use  was  not  habitual,  but  temporary, 
and  confined  to  a  single  occasion.  The  cases  relied  on  as  authority 
for  this  position  are  cases,  for  the  most  part,  where  there  was  no 
express  stipulation  or  warranty  against  the  use  of  the  particular 
dangerous  article  or  material  in  question,  but  only  a  prohibition  in 
general  terms  of  keeping  hazardous  things  on  the  premises  or  of 
carrying  on  a  different  or  more  dangerous  trade.  Dobson  v.  Sotheby, 
M.  &  M.  90;  Sha-ci'  V.  Robberds,  6  A.  &  E.  76.  But  where  there  is  a 
stipulation  that  the  policy  shall  be  avoided  on  the  use  of  an  article 
expressly  named,  and  there  is  nothing  in  the  policy  from  which  a 
permission  to  use  the  article,  in  a  partial,  limited  or  temporary  way, 
can  be  inferred,  full  effect  has  usually  been  given  to  the  prohibitive 
clause  by  a  forfeiture  of  the  policy  for  its  violation.  Glen  v.  Letvis, 
8  Exch.  607;  Faulkner  v.  Central  Ins.  Co.,  i  Kerr,  N.  B.  279; 
Worcester  v.  Ins.  Co.,  9  Gray,  27;  Matson  v.  Ins.  Co  ,  73  N.  Y.  310; 
Birmingha?n  Ins.  Co.  v.  Kroegher,  83  Pa.  St.  64;  Cerfw  Home  Ins. 
Co.,  44  Cal.  320.  No  reason  has  been  suggested  by  the  plaintiff 
why  the  restrictive  clause  in  the  policy  of  insurance  in  this  case 
should  receive  a  construction  by  rules  different  from  those  applied 
to  ordinary  business  contracts.  The  terms  of  the  prohibitive  clause 
are  simple,  well  known,  and  in  common  use.  There  is  nothing 
ambiguous  about  them,  and  there  can  be  no  doubt  as  to  their  mean- 
ing. The  stipulation  was  a  plain,  unqualified  agreement  that  the 
policy  should  be  forfeited  if  naphtha  were  used  in  the  premises 
insured.  It  was  a  reasonable  restriction  against  the  use  of  a  very 
dangerous  and  combustible  material ;  and  a  construction  which  would 
uphold  the  policy,  in  spite  of  a  plainly  hazardous  use  of  any  substantial 
quantity  of  so  dangerous  a  fluid  on  the  premises,  for  any  substantial 
time,  would  defeat  the  object  for  which  the  restriction  was  made. 

Carpenter,  J.,  did  not  sit;  the  others  concurred. 

Motion  denied.' 

'  In  First  Cong.  Church  v.  Ins.  Co.,  158  Mass.  475,  the  policy  provided  thai  it 
should  become  void  if  "  naphtha  *  *  *  be  kept  or  used  by  the  insured  on 
the  premises  insured."  A  painter  who  had  contracted  10  paint  the  church,  used 
a  naphtha  torch  to  burn  off  the  old  paint.  It  was  held  that  there  is  an  implied 
exception  to  this  provision  of  the  policy,  if  what  is  done  is  in  making  ordinary 
repairs  by  the  use  of  such  means  as  are  reasonably  necessary  for  that  purpose. 
This  was  the  question  for  i.he  jury:  "  Was  such  a  use  of  naphtha  a  reasonably 
safe  and  proper  way  of  making  repairs  in  this  building,  under  the  circum- 
stances? "  See  also  Steinbach  v.  Ins.  Co.,  54  N.  Y.  90,  and  Steinbach  v.  Ins.  Co., 
13  Wall.   183, 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  165 

8.   Occupancy. 
HERRMAN  v.  ADRIATIC  FIRE  INSURANCE  CO. 

85  N.  Y.  162.  —  1881. 

This  action  was  upon  a  policy  of  fire  insurance.  The  policy  con- 
tained this  condition:  "  If  the  above-mentioned  premises  shall 
*  *  *  become  vacant  or  unoccupied,  and  so  remain  for  more 
than  thirty  days,  without  notice  to  and  consent  of  this  company  in 
writing,     *     *     *     (-{^jg  policy  shall  be  void." 

The  premises  upon  which  was  the  property  insured  constituted 
the  plaintiff's  farm  and  summer  residence.  The  farm  was  managed 
by  a  farmer  in  plaintiff's  employ,  who  received,  as  a  part  of  his 
compensation,  the  use  of  the  smaller  dwelling  mentioned  in  the  pol- 
icy, and  who,  with  his  wife  and  children  and  a  gardener,  lived  upon 
it  throughout  the  entire  year.  The  plaintiff,  with  his  wife  and  chil- 
dren, actually  lived  upon  it  during  the  summer  and  part  of  the  fall, 
only.  About  the  20th  of  November,  1876,  the  plaintiff  with  his 
family  left  the  premises  and  returned  to  his  city  residence  to  remain 
for  the  winter,  leaving  in  the  main  dwelling  mentioned  in  the  policy 
all  his  furniture,  and  the  summer  clothing  of  himself  and  family. 
All  the  premises  insured  and  the  property  remaining  therein  were 
left  in  charge  of  the  farmer.  It  was  the  duty  of  the  farmer  to  see 
that  the  main  dwelling,  which  could  be  seen  from  the  farm-house, 
was  well  ventilated  and  properly  watched,  and  he  or  some  member 
of  his  family,  regularly  once  a  week,  did  go  into  and  through  it,  and 
open  all  the  windows  for  the  purpose  of  ventilation.  The  house  was 
then  carefully  closed  again,  the  windows  bolted  on  the  inside  and 
firmly  secured,  and  the  outer  door  locked,  and  thus  secured,  the 
house  was  left  for  the  ensuing  week.  The  plaintiff,  generally,  in 
company  with  his  wife,  visited  the  premises  once  a  fortnight,  to  see 
that  the  farmer  took  good  care  of  them.  The  plaintiff  was  in  the 
habit  on  these  visits  of  opening  the  main  dwelling,  going  through 
the  rooms  and  lunching  therein,  but  neither  he  nor  his  wife,  nor  any 
other  member  of  his  family  passed  a  night  in  the  house  during  the 
winter  preceding  the  fire.  About  three  days  before  the  fire  the 
plaintiff  and  his  wife  were  there,  on  one  of  these  usual  visits.  On 
the  8th  of  April,  1877,  a  fire  occurred  by  which  the  main  building, 
with  its  furniture,  and  the  wash-house,  kitchen  and  privy  in  the 
rear  were  destroyed,  the  loss  exceeding  the  amount  of  the 
insurance. 

FoLGER,  Ch.  J.  — This  is  an  action  on  a  policy  of  fire  insurance. 
The  property  insured  consisted  of  different  buildings,  and  different 


l66  THE    riiRMS   OK    llIE    INSURANCE   CONTRACT. 

kinds  of  chattel  property  kept  in  those  buildings,  respectively.  The 
different  properties  insured,  and  the  different  amounts  put  at  risk, 
each  are  specifically  named  in  the  policy  with  much  minuteness. 
The  property  destroyed  and  for  the  loss  of  which  the  action  is 
brought  was  but  parts  of  the  whole  at  risk,  being  the  dwelling-house, 
and  most  of  the  contents  of  it,  and  four  outbuildings,  essential  or 
convenient  for  use  with  the  dwelling. 

The  question  in  agitation  at  the  Trial  Term  and  at  the  General 
Term  was,  whether  the  policy  was  avoided  by  a  breach  of  the  con- 
dition, that  if  the  premises  should  become  vacant  or  unoccupied, 
and  so  remain  for  more  than  thirty  days  without  notice  to,  and 
consent  of,  the  defendant,  in  writing,  the  policy  should  be  void. 
The  plaintiff  contends  that  the  two  words  "  vacant  "  and  "  unoccu- 
pied "  are  synonyms,  and  are  to  be  interpreted  as  having  the  same 
meaning,  and  that  the  meaning  is  empty.  And  then  argues  that, 
as  the  dwelling-house  was  not  empty,  there  was  no  breach  of  the 
condition.  There  are  doubtless  conditions  of  a  dwelling-house,  or 
other  like  structure,  when  either  word  applied  to  it,  or  both  words 
applied  to  it,  will  express  a  like  state  of  it  There  are  however, 
states  of  it  when  that  will  not  be  the  case.  It  is  so,  because  the 
different  things  that  are  receptive  of  the  epithets  of  vacant  and 
unoccupied  are  different  in  their  capability  and  susceptibility  of 
being  filled  or  occupied.  Some  cannot  have  one  of  those  terms 
applicable  to  them,  without  the  other  at  the  same  time  being  also 
applicable.  Some,  from  the  nature  of  the  use  which  goes  with  the 
occupation  of  them,  may  not  be  vacant,  and  yet  they  will,  in  any 
just  use  of  the  term  as  applicable  to  them,  be  unoccupied.  A 
dwelling-house  is  chiefly  designed  for  the  abode  of  mankind.  For 
the  comfort  of  the  dwellers  in  it,  many  kinds  of  chattel  property 
are  gathered  in  it.  So  that,  in  the  use  of  it,  it  is  a  place  of  deposit 
of  things  inanimate  and  a  place  of  resort  and  tarrying  of  beings 
animate.  With  those  animate  far  away  from  it,  but  with  those 
inanimate  still  in  it,  it  would  not  be  vacant,  for  it  would  not  be 
empty  and  void.  And  as  a  possible  case,  with  all  inanimate  things 
taken  out.  but  with  those  animate  still  remaining  in  it,  it  would  not 
be  unoccupied  for  it  would  still  be  used  for  shelter  and  repose. 
And  it  is  because,  in  our  experience  for  the  purpose  and  use  of  a 
dwelling-house,  we  have  come  to  associate  our  notion  of  the  occu- 
pation of  it  with  the  habitual  presence  and  continued  abode  of 
human  bemgs  within  it,  that  that  word  applied  to  a  dwelling  always 
raises  that  conception  in  the  mind.  Sometimes,  indeed,  the  use  of 
the  word  "  vacant,"  as  applied  to  a  dwelling,  carries  the  notion  that 
there  is  no  dweller  therein;  and  we  should   not  be  sure  always  to 


TERMS    OF   THE    FIRE    INSURANCE   CONTRACT.  167 

get  or  convey  the  idea  of  an  empty  house,  by  the  words  "  vacant 
dwelling  "  applied  to  it.  But  when  the  phrase  "  vacant  or  unoccu- 
pied "  is  applied  to  a  dwelling-house,  plainly  there  is  a  purpose  — 
an  attempt  to  give  a  different  statement  of  the  condition  thereof; 
by  the  first  word,  as  an  empty  house,  by  the  second  word  as  one  in 
which  there  is  not  habitually  the  presence  of  human  beings.  In  the 
case  of  Hemnan  v.  The  Merchants'  Insurance  Company^  81  N.  Y. 
184  in  this  court,  in  June  last,  the  decision  went,  not  on  the 
ground  that  the  two  words  were  used  to  mean,  or  that  they  meant, 
the  same  condition  of  the  building,  but  that,  by  the  use  of  the  copu- 
lative conjunction  with  them,  there  was  a  contract  framed  of  which 
there  was  no  breach,  unless  the  house  was  at  the  same  time  in  the 
double  state  expressed  by  the  phrase;  that  is,  both  vacant  and 
unoccupied  at  the  time  of  the  fire,  both  empty  and  unused  for 
abode. 

It  is  clear,  from  the  testimony,  that  the  dwelling-house  insured 
by  the  defendant  was  not  occupied  as  such  at  the  time  of  the  fire. 
The  fortnightly  visits  of  the  plaintiff  and  his  wife  to  it  were  not  the 
occupation  that  is  meant  when  a  dwelling-house  is  spoken  of.  The 
weekly  tours  of  inspection  of  the  farmer  and  members  of  his  family 
living  on  the  grounds,  and  his  supervision  of  it  from  his  own  house, 
were  more  useful,  but  they  fell  short  of  being  occupation  of  it. 
The  term  "  unoccupied,"  used  in  the  policy,  is  entitled  to  a  sense 
adapted  to  the  occasion  of  its  use,  and  the  subject-matter  to  which 
it  is  applied.  It  does  not  need  that  we  go  into  discussion  of  the 
good  reasons  for  exacting  the  condition  on  taking  a  risk  upon  a 
dvvelling-house.  It  is  enough  that  the  parties  have  come  into  that 
covenant.  It  is  to  have  a  meaning  fitted  to  the  circumstances  in 
which  it  was  made  and  to  the  subject  to  which  it  related.  We  have 
already  said  enough  to  show  our  opinion  that,  for  a  dwelling-house 
to  be  in  a  state  of  occupation,  there  must  be  in  it  the  presence  of 
human  beings  as  at  their  customary  place  of  abode,  not  absolutely 
and  uninterruptedly  continuous,  but  that  must  be  the  place  of  usual 
return  and  habitual  stoppage.  We  think  that  a  verdict  of  a  jury 
would  not  have  been  allowed  to  stand,  that  found  that  this  dwelling- 
house  was  occupied  at  the  time  of  the  fire,  within  the  terms  of  the 
policy.  But  it  is  said,  that  though  this  may  be  so  in  general,  yet 
that  the  defendant  made  its  contract  with  a  view  to  just  the  state 
of  things  that  existed  with  this  property;  that  it  was  chargeable 
with  a  knowledge  of  the  character  and  use  of  the  premises,  and  that 
there  would  be  a  change  of  occupancy,  such  as  in  fact  occurred. 
We  cannot  yield  to  that  view.  It  may  be  that  the  defendant  knew 
that  it  was  but  the  place  of  summer  abode  for  the  plaintiff.     Its 


l68  THE    TERMS    OF   THE    INSURANCE   CONTRACT. 

contract  was  issued  in  the  summer  when  the  property  was  in  strict 
occupancy,  and  it  provided  for  the  coming  of  the  fall,  when  that 
occupancy  would  be  abandoned  or  modified;  for  the  policy  was  not 
void  at  once  on  a  cessation  of  occupancy.  That  cessation  must  last 
for  thirty  days,  and  be  unnotified  to  the  the  defendants  and  con- 
tinue thereafter  without  his  consent.  There  was  opportunity  for 
the  plaintiff  to  keep  up  that  indemnity  or  to  get  other;  and  to  the 
defendant  to  retain  the  risk,  or  to  be  freed  from  it,  when  that  occu- 
pancy was  about  to  cease,  and  notice  was  given. 

Nor  are  we  able,  after  much  consideration,  to  agree  with  the 
learned  General  Term  on  the  ground  upon  which  it  put  its  judg- 
ment. The  condition  of  the  policy  is:  "  Or  if  the  above-mentioned 
premises  shall  *  *  *  become  vacant  or  unoccupied  *  *  * 
this  policy  shall  be  void."  As  we  have  above  said,  there  were  sev- 
eral different  kinds  and  pieces  of  property  insured,  and,  as  was  indi- 
cated by  the  description  of  them,  the  whole  making  up  a  well-to-do 
proprietor's  rural  establishment  The  understanding  must  have  been 
that  there  was  comprised  in  the  whole  the  buildings  on  a  farm  or  coun- 
try seat  and  the  chattel  property  usually  kept  at  such  a  place.  The 
contention  is  that  the  words  "  above-mentioned  premises  "  are  col- 
lective and  apply  to  all  the  property  described,  and  the  intent  of 
the  condition  is  that  if  all  of  it  should  be  left  unoccupied,  then  the 
policy  would  be  void;  but  that  one  or  several,  or  many  of  the  build- 
ings might  be  unoccupied,  yet,  if  the  rest  were  occupied,  the  con- 
dition of  the  policy  would  be  saved.  To  give  this  construction  to 
the  phrase  in  question,  it  would  need  to  carry  it  through  all  the 
conditions  in  the  policy,  to  manifest  absurdity  and  to  an  incon- 
venient precedent.  There  is  a  condition  against  other  insurance, 
"  on  the  property  hereby  insured."  If  the  plaintiff  had  over-insured 
his  dwelling-house,  would  not  the  condition  have  been  broken,  as 
to  that,  though  he  had  not  increased  that  on  his  kitchen  detached? 
There  is  a  condition  against  a  change  of  title  of  the  property.  If 
the  plaintiff  had  sold  off  so  many  acres  as  would  include  the  farm- 
house, would  he  have  retained  his  insurance  on  that  building  because 
he  had  not  transferred  the  whole  premises?  The  plaintiff  grasps  at 
a  two-edged  sword,  when  he  seeks  to  make  such  application  of  those 
general  words  of  the  policy.  He  contends  that  when  words  are 
used  in  the  policy  referring  back  to  the  property  described,  they 
mean  to  include  the  whole  property.  This  would  be  to  make  the 
contract  of  insurance  entire  and  indivisible;  and  to  affect  all  the 
property  insured  with  any  act  of  the  insured,  which,  as  to  any  item 
thereof,  worked  a  breach  of  any  condition.  This  is  not  the  true, 
just,  or  equitable  construction.     The  clause  is  not  to  be  used  dis- 


TERMS   OF  THE    FIRE   INSURANCE   CONTRACT.  169 

tributively,  and  to  be  applied  to  each  singular  of  the  previous 
description  of  the  property,  as  the  kind  of  that  property  and  the 
nature  of  the  use  of  it  may  demand.  It  was  upon  this  principle  that 
we  grounded  our  decision   in  Merrill  v.  Agr.  Ins.   Co.,  73   N.  Y. 

452. 

There  we  said:  "  Though  there  may  have  been  some  conduct  of 
the  insured  as  to  some  of  the  property,  not  evil  in  itself,  but  work- 
ing a  breach  of  the  condition  in  its  letter,  the  effect  of  that  breach 
may  be  confined  to  the  insurance  upon  that  property,  the  contract 
as  to  that  be  held  to  be  avoided,  and  as  to  the  other  subjects  held 
valid."  This  was  the  converse  of  the  proposition  that  we  are  now 
maintaining. 

The  case  of  Bryan  v.  Peabody  Ins.  Co.,  8  W.  Va.  605,  is  not  par- 
allel with  this. 

Therefore,  though  the  farm  premises  and  some  of  the  buildings 
thereon  were  in  actual  human  occupation,  that  use  of  them  did  not 
extend  to  and  take  in  the  dwellings  burned,  so  as  to  keep  good  the 
condition  of  the  policy.  It  is  further  claimed  that  it  was  erroneous 
for  the  trial  court  to  direct  a  verdict  for  the  defendant,  because  all 
the  property  burned  was  not  unoccupied.  Besides,  the  dwelling- 
house,  there  was  lost  a  wash-house,  a  wood-house,  a  kitchen  and  a 
privy.  It  is  contended  that  there  was  no  evidence  that  these  were 
unoccupied.  The  reasoning  is  ingenious,  bnt  it  is  not  convincing. 
It  is  said  that  it  does  not  appear  that  the  occupation  of  these  struc- 
tures was  confined  to  the  plaintiff  or  the  members  of  his  immediate 
family  as  it  was  made  up  when  he  dwelt  upon  the  place,  and  that  it 
might  be  that  the  farmer  and  the  members  of  his  family  might  have 
used  and  occupied  them.  Now,  these  out-buildings  were  appurte- 
nant to  the  dwelling-house;  the  use  of  them  was  concurrent  with 
the  use  of  the  dwelling-house;  they  were  parts  of  the  one  domestic 
establishment,  and  separate  but  forty  feet  from  the  nain  buildiag. 
It  is  too  plain  for  denial,  save  as  a  dernier  resort,  that  the  occupancy 
of  them,  in  habitual  continuous  use  for  the  purposes  for  which  they 
were  built  and  to  which  they  were  put,  began  when  that  of  the 
dwelling-house  began,  and  ended  when  that  ended.  The  plaintiff  and 
the  defendant  made  their  contract  in  such  terms  as  it  pleased  them 
both.  It  may  or  may  not  be  a  strict  and  rigorous  application  to  the 
facts  of  the  case  of  the  condition  that  we  have  been  considering; 
but  we  cannot,  consistently  with  lasting  principles  of  construction 
and  interpretation,  hold  otherwise  than  that  the  plaintiff  made  a 
breach  of  a  binding  condition,  and  must  abide  the  unfortunate  con- 
sequence. 

The  order  of  the  General  Term  should  be  reversed,  and  judgment 


I70  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

absolute  rendered  in  favor  of  the  defendant  upon  the  verdict,  with 
costs. 

All  concur,  except  Miller,  J.,  not  voting. 

Order  reversed  and  judgment  accordingly.' 


9.  Location  of  Property. 
BRADBURY  v.  FIRE  INSURANCE  ASSOCIATION. 

80  Me   396.  —  1 833. 

LiBBEV,  J. —  These  actions  are  on  fire  policies,  and  being  substan- 
tially alike  were  tried  together  and  come  to  this  court  in  one  repor  . 
The  first  four  policies  insure  a  certain  sum  on  the  plaintiff's  "  franu 
stable  building,  occupied  by  assured  as  a  hack,  livery  and  boar;'- 
ing  stable,  situated  on  the  north  side  of  Court  street,  Aubuir, 
Maine,"  and  "  five  hundred  dollars  on  his  carriages,  sleighs,  hacks, 
hearses,  harnesses,  blankets,  robes  and  whips  contained  therein."' 
The  fifth  does  not  insure  the  building,  but  insures  fifteen  hundred 
dollars  on  the  same  kinds  of  personal  property  "  stored  in  the  private 
frame  stable  occupied  by  assured  and  situated  near  east  side  of  Main 
street,  Auburn,  Maine."  The  loss  claimed  by  the  plaintiff  is  for  dam- 
age by  fire  to  a  hack  not  in  his  stable  named  in  the  policies  at  the 
time  of  the  damage,  but  in  a  repair  shop  of  one  Litchfield,  on 
another  street  about  one-eighth  of  a  mile  distant,  where  it  had  been 
removed  the  day  before  the  fire  without  the  knowledge  or  consent 
of  the  defendant,  and  it  is  admitted  that  the  board  rate  for  insur- 
ance on  Litchfield's  repair  shop  and  contents  was  one  per  cent,  more 
than  on  the  plaintiff's  stable  on  Court  street.  The  damage  to  the 
hack  by  fire  while  at  Litchfield's  shop  is  admitted,  and  no  question 
is  made  as  to  the  sufficiency  of  the  notices.  The  only  contention 
between  the  parties  is,  whether  the  insurance  attached  to  and  fol- 
lowed the  plaintiff's  carriages,  hacks,  etc.,  when  removed  from  his 
stable  to  another  place  for  repairs  or  some  other  temporary  purpose, 

'  See  also  Shackelton  v.  Sun  Fire  Office,  55  Mich.  288;  and  for  a  comprehensive 
review  of  ihe  cases,  Continental  Ins.    Co.   v.   KyU\     124  Ind.  132. 

"  A  fair  and  reasonable  construction  of  the  language  '  vacant  and  unoccupied,' 
is,  that  it  should  be  without  an  occupant,—  without  any  person  living  in  it."  — 
Amer.  Ins.  Co.  v.  Padfield,  78  III.  167. 

A  policy  rendered  void  by  a  violation  of  the  condition  as  to  non-occupancy  is 
not  revived  by  a  subsequent  occupation  of  the  building.  — Moore  v.  Ins.  Co., 
62  N.  H.  240;  though  contra,  where  the  policy  reads  "  vacant  or  unoccupied, 
and  so  remain."  —  Laselle  v.  Ins.  Co.,  43  N  J.  L.  468. 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  171 

or  was  limited  to  such  carriages  only  as  were  at  or  in  the  stable 
named  at  time  of  loss  or  damage. 

Upon  this  question  there  appears  some  conflict  among  the  authori- 
ties. The  general  rule  stated  by  text  writers  and  held  by  the  gen- 
eral current  of  decided  cases  is,  that  place  where  the  personal  prop- 
erty insured  is  kept  is  of  the  essence  of  the  contract,  as  by  that  the 
character  of  the  risk  is  largely  determined,  and  the  property  is  cov- 
ered by  the  policy  only  while  in  the  place  described.  Wood  on  Ins. 
p.  no;  Blodgett  on  Fire  Ins.  p.  22;  Eddy  Street  Iron  Foundry  v. 
The  Hampden  S.  6^  M .  F.  Ins.  Co.,  i  Cliff.  300;  Annapolis  ^  Eld  ridge 
R.  R.  Co.  V.  Baltimore  Ins.  Co.,  43  MJ.  506;  Fitchburg  R  .R.  Co.  v. 
Charleston  M.  F.  Ins.  Co.,  7  Gray,  64  The  following  cases  are 
cited  as  establishing  an  exception  to  the  general  rule  and  as  sustaining 
the  plaintiff's  contention.  Everett  v.  Continental  Ins.  Co.,  21  Minn. 
76;  Hoi  brook  V.  St.  Paul  F.  6-  AI.  Ins.  Co.,  25  Minn.  229;  McClure 
V.  Girard  Ins.  Co.,  43  Iowa,  349;  Longueville  v.  Western  Ins.  Co.,  51 
Iowa,  553;  Lyons  v.  Protndence  Washington  Ins.  Co.,  13  R.  I.  347. 
We  think  a  careful  examination  of  all  these  case;,  will  show  that  the 
chattels  insured  are  so  described  in  the  policy  that  they  can  be 
identified  without  reference  to  the  building  or  place  where  they  were 
kept,  and  the  courts  held  that  the  words  "  contained  in  "  a  certain 
building,  or  kept  in  a  certain  building  or  place,  was  a  part  only  of 
the  description  of  the  chattel,  and  if  from  its  nature,  character  or 
ordinary  use,  the  parties  must  have  understood  that  it  was  to  be  out 
of  the  building  or  place  a  part  of  the  time  in  ordinary  use,  the 
policy  should  be  held  to  cover  it  while  so  out.  This  is  going  to  the 
verge  in  construing  the  language  used  by  the  parties  in  a  contract, 
when,  ordinarily,  it  does  not  bear  such  meaning.  But  this  case  does 
not  appear  to  us  to  be  within  the  authority  of  those  cases. 

The  policies  in  suit  do  not  insure  a  particular  carriage  or  hack  by 
any  description  by  which  it  can  be  identified  without  reference  to 
the  stable.  They  do  not  insure  all  the  plaintiff's  carriages,  hacks, 
etc.,  used  in  his  livery  business,  contained  in  the  stable  described. 
It  cannot  be  held  that  they  cover  only  such  carriages,  hacks,  etc., 
as  were  contained  in  the  building  named  at  the  date  of  the  policies. 
From  the  nature  of  the  plaintiff's  business,  it  must  have  been  in  the 
contemplation  of  the  parties  that  the  chattels  named  might  be 
changed  from  time  to  time  during  the  year,  some  sold,  some  worn 
out,  some  destroyed  by  accident,  and  others  put  in  to  take  their 
places.  The  policies  are  similar  to  an  insurance  of  a  shop-keeper  on 
his  stock  of  goods  in  his  shop,  or  of  a  railroad  company  on  its  roll- 
ing stock  on  its  road,  constantly  changing.  In  such  case  the  prop- 
erty insured   can    be   ascertained   only   from   the   place    of  business 


172  THE   TERMS   OF   THE    iS'SUKAN'CE   CONTRACT. 

named.  Iaohs'^'.  Provide lui-  Was/ti/igto/t  //is.  Qk,  13  R.  I.  347;  Eddy 
Street  Iron  Foundry  v.  Hampden  S.  or'  M.  F.  Ins.  Co.,  1  Cliff.  300; 
Fing  V.  F/iivnix  Assuranee  Co.,  Mass.  N.  E.  R.  V.  5,  No.  14,  p.  387. 
The  pi)licies  insure  such  of  the  plaintiff's  carriages,  hacks,  etc.,  as 
are  contained  in  his  stable  at  the  time  of  loss.  We  can  see  no  other 
way  of  identifying  the  property  covered  by  the  policies.  It  cannot 
be  that  the  policies  should  be  so  construed  that  they  will  cover  a 
hack  once  put  into  the  stable  and  then  taken  out,  wherever  it  may  be. 
The  language  of  the  contract  is  not  apt  to  embrace  such  a  risk.  The 
risk  might  thus  be  increased  two  or  three-fold,  and  still  if  the  con- 
tract must  be  construed  as  covering  it,  it  is  not  a  forfeiture  of  the 
policy  for  an  increase  of  the  risk.  It  is  simply  the  risk  contem- 
plated by  the  parties.  Fitchburg  F.  F.  Co.  v.  Charleston  M.  F.  Ins. 
Co.,  7  Gray,  p.  66.  The  view  we  take  of  the  first  four  policies 
makes  it  unnecessary  to  consider  whether  the  terms  of  the  fifth 
policy  should  receive  a  construction  more  strongly  against  the  plain- 
tiff.    They  are  certainly  no  more  favorable  to  him. 

The  actions  are  not  sustained. 

Judgment  for  the  defendants  in  each  action. 

Peters,  C.  J.,  Walton,  Virgin,  Foster  and  Haskell,   JJ.,  con- 
curred.' 


10.  Operation  of  Manufactory. 
LEBANON  MUTUAL  INSURANCE  CO.  z'.  LEATHERS. 

8  Atl.  Rep.  424  (Pa.)— 1887. 

The  policy  provided:  "  If  the?  property  insured  be  a  manufactur- 
ing establishment  or  a  mill  running  in  whole  or  in  part  over  or  extra 
time,  or  running  at  night,  or  if  the  same  shall  cease  to  be  operated 
without   the   consent  of   the   company  indorsed   hereon,  this  policy 

'  In  Noycs  v.  Ins  Co.,  64  Wis.  415,  a  sealskin  dolman  insured  as  wearing 
apparel  "  contained  in  "  a  certain  dwelling-house,  was  burned  while  at  a  fur- 
rier's for  repairs.  The  court  held  that  considering  the  character  of  the  property 
the  policy  must  be  deemed  to  have  contemplated  such  a  change  of  location  as  pei- 
missible,  the  court  saying,  howeirer,  that  "  in  a  policy  upon  personal  property, 
which  from  its  character  and  ordinary  use,  is  kept  continuously  in  one  place, 
as  a  stock  of  merchandise,  machinery  in  a  building,  household  furniture,  or 
goods  stored,  the  rule  undoubtedly  is  that  the  location  of  the  property  designated 
in  the  risk  is  an  essential  element  of  the  risk  and  usually  a  continuing  war- 
ranty." In  Amer.  Cent.  Ins.  Co.  v.  Kothchild,  82  111.  16,  168,  it  is  held  that  "  in- 
surance upon  a  stock  of  goods  which  was  to  be  sold  and  replenished,  covers  as 
well  the  additions  made  fr.im  time  to  time,  after  the  insurance  was  effected,  as 
those  on  hand  when  the  policy  was  issued.  " 


TERMS   OF   THE    FIRE   INSURANCE    CONTRACT.  1 73 

shall  cease  and  determine."  During  part  of  the  summer  of  1883,  and 
some  time  prior  to  the  fire,  defendants  in  error  did  not  do  any  tan- 
ning in  the  shops  connected  with  the  property  insured  because  they 
had  run  out  of  hides.  They  negotiated  with  a  number  of  persons 
for  hides  and  stocks;  had  ordered  hides,  but  the  orders  were  not 
yet  filled  when  the  fire  occurred.  The  property,  however,  during 
all  this  time,  was  occupied  and  used  as  a  tannery.  Bark  was  pur- 
chased, prepared,  and  placed  into  the  sheds,  in  addition  to  the  bark 
that  remained  over  from  the  previous  year.  The  liquors  were  kept 
in  the  vats  ready  for  use  whenever  hides  could  be  secured.  The 
machinery  and  tools  all  remained  on  the  premises,  and  at  no  time 
during  the  life  of  the  policy  was  the  property  vacant,  nor  did  it 
cease  to  be  kept  and  operated  as  a  tannery. 

Per  Curiam.  — A  mere  temporary  suspension  of  the  business  of 
the  establishment  for  the  purpose  of  repairing,  or  from  want  of  a 
supply  of  materials,  is  clearly  not  ceasing  to  operate  the  establish- 
ment within  the  meaning  of  the  policy.     *     *     *     » 


II.  Alterations. 
MACK  V.  ROCHESTER  GERMAN  INSURANCE  CO. 

106  N.  Y.  560.  —  1887. 

RuGER,  Ch.  J.  — The  policy  of  insurance  upon  which  this  action 
was  brought  contained,  among  others,  the  following  provisions: 
"  The  working  of  carpenters,  roofers,  gas-fitters,  plumbers  and 
other  mechanics,  in  building,  altering  or  repairing  any  building  or 
buildings  covered  by  this  policy  will  cause  a  forfeiture  of  all  claim 
under  this  policy,  without  the  written  consent  of  this  company 
indorsed  hereon."  It  was  also  provided  that  the  policy  should  be 
void  "  if  the  risk  be  increased  by  any  means  within  the  control  of 
the  assured." 

At  the  Circuit  a  verdict  was  directed  in  favor  of  the  defendant, 
upon  the  ground  that  the  loss  occurred  during  the  violation  of  the 
conditions  of  the  policy  by  the  plaintiff,  and  while  the  building  was 
being  occupied  by  carpenters  in  making  alterations  therein  without 

'  So,  too,  where  the  operation  of  a  cotton  mill  was  temporarily  suspended 
because  of  difficulty  in  procuring  cotton  of  the  quality  that  could  be  worked  up 
at  a  profit.  Anier.- Fire  Ins .  Co.  v.  Manuf  g.  Co.,  125  111.  131.  And  likewise 
where  there  was  a  temporary  cessation  of  the  operation  of  the  machinery  in  a 
saw-mill  during  the  illness  of  the  sawyer,  the  other  business  of  the  mill  being 
conducted  as  usual.  — LaJd  v.   Ins.  Co.,  147  N.  Y.  478. 


174  rin:   TERMS   OF   THE    INSURANCE   CONTRACT. 

tlie   tlefendant's  written   consent.      The   (ieneral    Term  was   of   the 
opinion  that  the  evidence  presented  a  question  of  fact  for  the  jury, 
and  that  the  trial  court  erred  in  directing  a  verdict.      We  differ  with 
the  General  Term.     There  was  no  material  conflict  in  the  evidence, 
and  the  following  facts  were    undisputed:     The   policy  in   question 
was  issued  January  29,  1881,  and  the  fire  occasioning  the  destruction 
of  the  building  took   place  on  October  eleventh,  thereafter.      At  the 
time  of  the   insurance  the  building  was  occupied  as  a  grocery  store 
by  a  tenant  of  the  plaintiff,  and    continued    to  be  so  occupied   until 
abmit  October  first.     On   September  29,  1881,  the  plaintiff  executed 
a  lease  of  the  building  to  other  tenants,  who  contemplated  using  it 
for  the  purpose  of  carrying   on  the  business  of  drying  fruit,  and  the 
lease  provided  that  they  should  have   the   privilege  of  putting  the 
machinery  needed  for  their  business  into  the  building.     This  busi- 
ness required  some  alteration  in  the  structure,  and  the  introduction 
therein  of  a  furnace  and  wooden  shafts  or  boxes  running  from  the 
cellar  to  the   roof,  and   constituting   the   driers   in  which   fruit  was 
intended  to  be  cured  by  heat.     These  driers  required,  in  their  forma- 
tion, the  cutting  of  large  holes,  five  feet  square,  through  each  floor 
of  the  building  and  its  roof,  and  the  removal  of  the  timbers,  boards, 
scantling  and  plastering,  constituting  the  flooring  and  roofing,  and 
the   rcbracing  of   the   joists  or  sleepers  of  the  several  floors.     They 
also  required   the  introduction  of  wooden  boxes  or  shafts  running 
from   the   cellar   to  six  feet  above   the   roof,  divided   into   compart- 
ments, for  holding  the  fruit  while  it  was  in  process  of  being  d-ied. 
These   boxes  were   made  of   boards  securely  fastened  to  pine  scant- 
ling at  each   corner  of   the   box   and  forming  a  well    or  shaft  from 
cellar  to  roof.     From  about  October   first  to  the  tim.e  of  the  fire, 
carpenters  were  engaged  in  making  these  changes  as  well  as  making 
tables  and  other  conveniences  for  carrying  on  the  business  of  dry- 
ing fruit,  and  these  improvements  had  not  been  completed  when  the 
building  was  destroyed.     The  General  Term  assumed  that  the  mak- 
ing of  ordinary  and  necessary  repairs  to  a   building   to  preserve  it 
from  decay,  or  the  cutting  of  a  stove-pipe  hole  in  a  partition,  or 
other  similar  acts,  would  not  be  a  breach  of  the  condition  of  the 
policy,  and,  therefore,    the   question   here  presented   could  not   be 
held  as  a  question,  of  law  to  constitute  such   an   alteration    of  the 
building  by  carpenters  as  would  violate  the  conditions  of  the  policy. 
These  illustrations  do  not  seem  to  us  to  be  applicable  to  this  case, 
or   to   afford   any  authority  for   the   proposition    that    a   jury   were 
authorized,  in  such  case  as  the  present,  to  find  that  the  covenants 
were  not  violated  by  the  plaintiff.     The  General  Term  properly  laid 
down  the  rule  by  which  such  instruments  should  be  construed,  and 


TERMS   OF   THE    FIRE    INSURANCE    CONTRACT.  175 

hp]  i  that  they  should  receive  a  reasonable  construction,  reference 
beiag  had  to  the  object  sought  to  be  obtained  by  the  parties."  It 
was  also  said  that  "  such  conditions  are  not  to  be  e.\tended  by 
implication  so  as  to  include  cases  not  clearly  or  reasonably  within 
the  words  as  ordinarily  used  and  understood."  We  have  no  diffi- 
culty in  agreeing  with  the  rules  of  law  laid  down  by  that  court,  but 
we  are  quite  unable  to  concur  in  the  view  taken  by  it  of  the  evi- 
dence. *  *  *  There  can  be  no  reasonable  question  but  that  the 
evidence  here  showed  a  clear  and  deliberate  attempt  to  change  the 
character  of  the  occupation  of  the  insured  building  from  a  com  lar- 
atively  safe  to  a  hazardous  one,  and  a  substantial  alteration  of  the 
structure  by  carpenters.  Taese  alterations  required  the  removal  of 
large  portions  of  two  floors  and  the  roof,  and  the  introduction 
therein  of  two  flues  constructed  of  inflammable  materials  and 
extending  through  the  entire  height  of  the  structure,  affording  every 
means  for  the  spread  of  conflagration  and  constituting  a  large 
increase  of  combustible  material.  The  case  is  brought  clearly  within 
the  spirit  as  well  as  the  letter  of  the  contract,  and  if  it  does  not 
show  a  violation  of  the  conditions,  we  can  conceive  of  no  situation 
which  would  have  effected  that  result.  In  case  there  had  been  a 
submission  of  the  facts  to  the  jury  and  it  had  found  that  carpenters 
were  not  engaged  in  making  alterations  of  this  building  within  the 
meaning  of  the  policy,  it  would  have  been  the  clear  duty  of  the 
court  to  h9  ve  set  aside  the  verdict.  Courts  are  under  no  obligation  to 
yield  their  assent  to  verdicts  which  deny  significance  to  language, 
or  violate  the  plain  meaning  and  intent  of  an  unambiguous 
contract. 

The  order  of  the  General  Term  should  be  reversed  and  the  judg- 
ment entered  upon  the  verdict  affirmed,  with  costs. 

All  concur. 

Order  reversed  and  judgment  affirmed.' 

'  The  General  Term  said  (35  Hun,  78):  "  It  has  been  held  that  a  similar 
clause  in  a  policy  did  not  apply  to  ordinary  or  necessary  repairs,  because  ihey 
are  presumed  to  be  assented  to  by  implication,  and  it  would  not  be  reasonable 
to  construe  the  provisions  so  as  to  make  a  contract  to  indemnify  the  building 
from  fire,  provide  for  its  destruction  by  other  elements.  {Franklin  Ins.  Co.  v. 
Chicago  Ice  Co.,  36  Md.  I02.)" 

'■' "  When  a  building  is  insured  it  is  of  course  understood  that  it  is  to  be  used 
in  the  ordinary  way  of  using  similar  buildings  and  no  one  expects  that  it  is  to 
be  set  apart  and  wholly  devoted  to  being  kept  safely.  One  of  the  ordinary 
incidents  to  this  usual  occupation  is  that  of  making  repairs.  The  general  right 
to  make  these  has  never  been  doubted,  when  the  policy  contained  no  special 
provisions  upon  the  subject." —  Townsend  v.  Co.,  18  N.  Y.  168,  174.  See  also 
Imperial  Fire  Ins.  Co.  v.  Coos  County,  151  U.  S.  452. 


1/6  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

12.  Structure  on  Ground  Not  Owned  by  Insured. 

DOVVD  V.  AMERICAN  FIRE  INSURANCE  CO. 

41  Hln.  139.  —  1886. 

Appeal  from  judgment  in  favor  of  plaintiff  in  an  action  brought 
upon  an  insurance  policy.  The  policy  provided;  "  If  the  building 
insured  stands  on  leased  ground  it  must  be  so  represented  to  the 
company  and  expressed  in  the  policy  in  writing,  otherwise  the  insur- 
ance as  to  such  property  shall  be  void." 

Peckham,  J. — It  seems  to  me  plainly  pro i-ed  that  the  building 
which  was  insured  under  the  policy,  put  in  evidence  in  this  case, 
stood  on  leased  ground,  and  it  was  not  so  represented  to  the  com- 
pany nor  expressed  in  the  policy  in  writing,  and  the  policy  con- 
tained a  provision  that  otherwise  the  insurance  as  to  such  property 
should  be  void.  The  instrument,  under  which  the  plaintiffs'  title 
accrued,  stated  that  John  House,  who  was  the  original  owner  of  the 
land  demised,  leased  and  to  farm  let  unto  the  assignor  of  the  plain- 
tiffs' the  land  upon  which  the  building  in  question  was  erected,  and 
to  his  heirs  and  assignees  forever  and  provided  for  perpetual  pay- 
ment of  an  annual  rent,  with  a  clause  of  re-entry  for  condition 
broken.  It  was  proved  that  at  the  time  when  the  policy  was  exe- 
cuted the  rent  had  been  in  arrears  for  a  number  of  years.  The 
ground  was  leased  within  the  meaning  of  the  language  used  in  the 
policy.  Tyler  X.  Heidorn,  46  Baib.  439;  Van  Rensselaer  v.  Barrin- 
ger,  39  N.  Y.  I,  at  18.  The  first  cited  case  shows  the  view  taken 
by  the  General  Term  in  this  department,  of  the  character  of  those 
instruments  which  reserved  rent,  even  when  in  the  language  used 
they  were,  in  terms,  conveyances  in  fee,  subject  to  the  payment  of 
rent;  the  court  saying  that  the  parties  to  the  instrument  were  land- 
lord and  tenant,  even  when  the  language  was  as  above  stated.  The 
language  in  the  instrument  in  question  is  technically  that  which  is 
used  in  leases,  "  demise,  lease  and  to  farm  let,"  "  yielding  and 
paying  therefor  "  *  *  *  "  ^j^g  annual  rent,"  etc.  I  think  it 
must  be  held  that  it  was  proved  the  building  stood  on  leased 
ground.     *     *     * 

13.  Foreclosure  Proceedings. 
Earl.  J.,  in  TITUS  v.  GLENS  FALLS  INSURANCE  CO. 

81  N.  Y.  410,  417.  —  1S80. 

I  NOW  come  to  a  more  serious  objection  to  this  recovery.  The 
policy  contains  a  provision  that  it  should  be  void  if  foreclosure  pro- 
ceedings should  be  commenced  against  the  insured  property,  and 


r 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  1 7/ 

■this  provisi-on  was  alleged  to  have  been  violated.  The  plaintiff  com- 
menced a  foreclosure  of  his  mortgage,  by  action,  about  the  ist  of 
May,  1877,  and  he  obtained  a  judgment  of  foreclosure,  and  under 
tiiat  judgment  he  caused  the  mortgaged  premises  to  be  advertised 
for  sale  a  few  days  before  the  fire.  In  reference  to  this  objection 
to  plaintiff's  recovery,  the  opinion  pronounced  at  General  Term 
contains  the  following;  "  We  do  not  think  this  condition  relates  to 
the  plaintiff's  mortgage.  It  cannot  be  assumed  that  in  a  policy 
issued  by  the  defendant,  with  the  loss  payable  to  the  plaintiff  as 
mortgagee,  a  condition  would  be  inserted  prohibiting  him  from 
foreclosing  his  mortgage.  The  condition  has  some  other  meaning." 
The  argument  of  plaintiff's  counsel  is,  that  when  the  defendant 
assented  to  this  mortgage,  it  necessarily  assented  to  all  the  neces- 
sary incidents  and  consequences  of  the  mortgage  interest;  that, 
having  been  notified  of  the  interest  of  the  mortgagee  in  the  prop- 
erty, and  having  agreed  to  pay  him  the  loss,  if  any,  it  cannot  call  in 
question  the  natural  result  and  incident  of  such  a  mortgage  title,  to 
wit,  the  foreclosure  thereof,  but  must  be  held  to  have  agreed  to  it 
in  advance.  This  reasoning  does  not  carry  conviction  to  our 
minds.  A  provision  that  a  policy  shall  be  void  in  the  case  of  fore- 
closure proceedings  is  common  in  insurance  policies,  and  we  must 
assume  that  experience  has  shovvn  to  underwriters  that  such  pro- 
ceedings increase  the  risk  to  the  insurer.  The  defendant  might 
have  been  willing,  for  the  premium  charged,  to  insure  this  barn 
with  the  mortgage  upon  it,  and  yet  not  willing  to  insure  it  in  case  of 
proceedings  to  foreclose  the  mortgage.  It  did  assent  to  the  mort- 
gage, and  agree  that  the  loss,  if  any,  be  paid  to  the  mortgagee,  but 
it  did  not  assent  to  continue  the  insurance  in  case  the  risk  was 
increased  by  proceedings  to  foreclose  the  mortgage.  Before  com- 
mencing the  foreclosure  the  plaintiff  should  have  obtained  the 
assent  of  the  defendant.  It  might  have  examined  the  circumstances 
and  granted  such  assent  without  any  conditions,  or  it  might  have 
required  an  additional  premium  for  the  increased  risk.  It  might 
have  refused  altogether,  and  in  that  case  the  plaintiff  could  have 
delayed  his  foreclosure  until  the  end  of  the  year,  or  surrendered  the 
policy  and  procured  insurance  elsewhere.  Even  if  the  provision 
were  found  to  be  very  inconvenient  and  embarrassing,  there  is  no 
help  for  it.  There  it  is,  and  we  cannot  take  it  out  of  the  policy  by 
construction.  There  are  two  provisions:  one,  that  liens,  without 
the  assent  of  the  company,  shall  avoid  the  policy;  and  another, 
that  foreclosure  proceedings  shall  avoid  it;  and  effect  must  be  given 
to  both.  According  to  the  construction  contended  for  on  the  part 
of  the  plaintiff,  the  latter  provision  would  be  wholly  useless  or  nulli- 

LAW  OF  INSURANCE  —  12 


178  THE    TERMS    OF   THE    INSURANCE    C\)N  IKAL  1 

fied  in  every  case,  because  all  liens  avoid  the  policy  unless  assented 
to;  and  according  to  that  construction,  when  assented  to,  fore- 
closure proceedings  may  be  instituted  without  avoiding  the  policy. 
If  such  proceedings  may  be  instituted  as  incident  to  the  mortgage, 
then  they  may  be  carried  to  their  conclusion  by  a  sale  and  convey- 
ance, and  thus  by  assenting  to  a  mortgage,  a  company  may  be  held 
to  have  assented  to  a  change  of  title  of  the  insured  property.  Such 
a  construction  is  unreasonable  and  unwarranted  Pratt  v.  The  New 
York  Central  Ins.  Co.,  55  N.  Y.  505.  But  we  are  of  opinion  that 
the  claim  of  the  plaintiff  is  well  founded  that  the  forfeiture  caused 
by  the  foreclosure  proceedings  was  waived  by  the  defendant.   *  *    *   , 


b.  Loss  by  Fire :  Proximate  Cause. 

LYNN  GAS  AND  ELECTRIC  CO.  v.  MERIDEN  FIRE 
INSURANCE  CO.  &  Others. 

158  Mass.  570.  —  1S93. 

Contract  against  several  insurance  companies,  insuring  the  build- 
ing and  machinery  of  the  plaintiff  against  loss  or  damage  by  fire.  A 
fire  occurred  in  the  wire  tower,  so  called,  of  the  plaintiff's  building, 
through  which  the  wires  for  electric  lighting  were  carried  from  the 
building,  which  fire  was  speedily  extinguished,  without  contact  with 
other  parts  of  the  building  and  contents,  and  with  slight  damage  to 
the  tower  or  its  contents.  About  the  same  time  and  in  a  part  of  the 
building  remote  from  the  fire  and  untouched  thereby,  there  occurred 
a  disruption  by  centrifugal  force  of  the  fly-wheel  of  the  engine  and 
of  certain  pulleys  connected  therewith,  by  which  disruption  the 
plaintiff's  building  and  machinery  were  damaged  to  a  large  amount. 
The  defendants  introduced  evidence  tending  to  show  that  the  slip- 
ping of  a  belt  was  the  cause  both  of  the  fire  in  the  tower  and  of  the 
disruption  of  the  machinery  and  that  a  defective  pulley  might  have 
contributed  to  cause  the  disaster.  The  theory  of  the  plaintiff  is 
stated  in  the  opinion. 

Knowlton,  J.  — The  only  exception  relied  on  by  the  defendants 
in  these  cases  is  that  relating  to  the  claim  for  damage  to  the 
machinery  used  in  generating  electricity  and  to  the  building  from  a 
disruption  of  the  machinery.  This  machinery  v;as  in  a  part  of  the 
building  remote  from  the  fire,  and  none  of  it  was  burned.  In  his 
charge  to  the  jury  the  judge  stated  the  theory  of  the  plaintiff  as 
follows:  "  The  plaintiff  says  the  position  of  the  lightning  arresters 
in  the  vicinity  of  the  fire  was  such  that  by  reason  of  the  fire  in  the 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  I79 

tower  a  connection  was  made  between  them  called  a  short  circuit; 
that  the  short  circuit  resulted  in  keeping  back  or  in  bringing  into 
the  dynamo  below  an  increase  of  electric  current  that  made  it  more 
difficult  for  this  armature  to  revolve  than  before,  and  caused  a 
higher  power  to  be  exerted  upon  it,  or  at  least  caused  greater  resist- 
ance to  the  machinery;  that  this  resistance  was  transmitted  to  the 
pulley  by  which  this  armature  was  run,  through  the  belt;  that  that 
shock  destroyed  that  pulley;  that  by  the  destruction  of  that  pulley 
the  mail)  shaft  was  disturbed  and  the  succeeding  pulleys  up  to  the 
jack  pulley  were  ruptured;  that  by  reason  of  pieces  flying  from  the 
jack-pulley,  or  from  some  other  cause,  the  fly-wheel  of  the  engine 
was  destroyed,  the  gov'ernor  broken,  and  everything  crushed;  — in 
a  word,  that  the  short  circuit  in  the  tower  by  reason  of  the  fire 
caused  an  extra  strain  upon  the  belt  through  the  action  of  electric- 
ity, and  that  caused  the  damage."  The  plaintiff  contended  that 
the  short  circuit  was  produced  by  the  fire,  either  by  means  of  heat 
on  h  ;  h  jrns  of  the  lightning  arresters,  or  by  the  flame  acting  as  a 
conJjctor  between  the  two  horns,  or  in  some  other  way.  The  jury 
found  that  the  plaintiff's  theory  of  the  cause  of  the  damage  was  cor- 
rect, and  the  question  is  whether  the  judge  was  right  in  ruling  that 
an  injury  to  the  machinery  caused  in  this  way  was  a  "  loss  or  dam- 
age by  fire,"  within  the  meaning  of  the  policy. 

The  subject-matter  of  the  insurance  was  the  building,  machinery, 
dynamos,  and  other  electrical  fixtures,  besides  tools,  furniture,  and 
supplies  used  in  the  business  of  furnishing  electricity  for  electric 
lighting.  The  defendants,  when  they  made  their  contracts,  under- 
stood that  the  building  contained  a  large  quantity  of  electrical 
machinery,  and  that  electricity  would  be  transmitted  from  the 
dynamos,  and  would  be  a  powerful  force  in  and  about  the  building. 
They  must  be  presumed  to  have  contemplated  such  ejects  as  fire 
might  naturally  produce  in  connection  with  machinery  used  in  gen- 
erating and  transmitting  strong  currents  of  electricity. 

The  subject  involves  a  consideration  of  the  causes  to  which  an 
effect  should  be  ascribed  when  several  conditions,  agencies,  or 
authors  contribute  to  produce  an  effect.  The  defendants  contend 
that  the  application  of  the  principle  which  is  expressed  by  the 
maxim,  Injure  non  remota  causa  sed proxima  spectatiir,  relieves  them 
from  liability  in  these  cases.  It  has  often  been  necessary  to  deter- 
mine, in  trials  in  court,  what  is  to  be  deemed  the  responsible  cause 
which  furnishes  a  foundation  for  a  claim  when  several  agencies  and 
conditions  have  a  share  in  causing  damage,  and  the  best  rule  that 
can  be  formulated  is  often  difficult  of  application.  When  it  is  said 
that  the  cause  to  be  sought  is  the  direct  and  proximate  cause,  it  is 


l80  THE    TERMS   OF   THE    INSURANXE    CONTRACT. 

not  meant  that  the  cause  or  agency  which  is  nearest  in  time  or  place 
to  the  result  is  necessarily  to  be  chosen.  Franuin  v.  Mercantile 
Accident  Association,  156  Mass.  351.  The  active  efficient  cause 
that  sets  in  motion  a  train  of  events  whicli  brings  about  a  result 
without  the  intervention  of  any  force  started  and  working  actively 
from  a  new  and  independent  source  is  the  direct  and  proximate  cause 
referred  to  in  the  cases.  McDonald  v.  Sne/iing,  14  Allen,  290; 
Pcrlcy  V.  Eastern  Railroad,  98  Mass.  414,  419;  Gibneyw  State,  137  N. 
V.  529.  In  Milwaukee  cs^  St.  Paul  Railicay  v.  Kellogg,  94  U.  S.  469, 
474,  Mr.  Justice  Strong,  who  also  wrote  the  opinions  in  Insurance 
Co.  V.  Transportation  Co.,  12  Wall.  194  and  in  Western  Massachusetts 
Ins.  Co.  V.  Transportation  Co.,  12  Wall.  201,  which  are  much  relied  on 
by  the  defendants,  used  the  following  language  in  the  opinion  of  the 
court:  "  The  primary  cause  may  be  the  proximate  cause  of  a  dis- 
aster, though  it  may  operate  through  successive  instruments,  as  an 
article  at  the  end  of  a  chain  may  be  moved  by  a  force  applied  at  the 
other  end,  that  force  being  the  proximate  cause  of  the  movement, 
or  as  the  oft-cited  case  of  the  squib  thrown  in  the  market-place.  2  Bl, 
Rep.  892.  The  question  always  is,  Was  there  an  unbroken  connec- 
tion between  the  wrongful  act  and  the  injury,  a  continuous  operation? 
Did  the  facts  constitute  a  continuous  succession  of  events  so 
linked  together  as  to  make  a  natural  whole,  or  was  there  some  new 
and  independent  cause  intervening  between  the  wrong  and  the 
injury?  " 

If  this  were  an  action  against  one  who  negligently  set  the  fire  in 
the  tower,  and  thus  caused  the  injury  to  the  machinery,  it  is  clear, 
on  the  theory  of  the  plaintiff  that  the  negligent  act  of  setting  the 
fire  would  be  deemed  the  active  efficient  cause  of  the  disruption  of 
the  machinery  and  the  consequent  injury  to  the  building.  It  remains 
to  inquire  whether  there  is  a  different  rule  in  an  action  on  a  policy 
of  fire  insurance.  *  *  *  in  suits  brought  on  policies  of  fire  in- 
surance, it  is  held  that  the  intention  of  the  defendants  must  have 
been  to  insure  against  losses  where  the  cause  insured  against  was 
a  means  or  agency  in  causing  the  loss,  even  though  it  was  entirely 
due  to  some  other  active,  efficient  cause  which  made  use  of  it,  or 
set  it  in  motion,  if  the  original  efficient  cause  was  not  itself  made  r. 
subject  of  separate  insurance  in  the  contract  between  the  parties. 
For  instance,  where  the  negligent  act  of  the  insured,  or  of  anybody 
else,  causes  a  fire,  and  so  causes  damage,  although  the  negligent 
act  is  the  direct,  pro.ximate  cause  of  the  damage,  through  the  fire, 
which  was  the  passive  agency,  the  insurer  is  held  liable  for  a  loss 
caused  by  the  fire.  Johnson  v.  Berkshire  Ins.  Co.,  4  Allen,  388; 
Walker  v.  Maitland,  5  B.  &  Aid.  171 ;    Waters  v.  Merchants   louisville 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  l8l 

Ins.  Co.,  II  Pet.  213;  Peters  v.  Warren  Ins.  Co.,  14  Pet.  99,  Gen- 
era/Ins. Co.  V'.  Sherioood,  14  How.  351;  Insurance  Co.  v.  Tweed,  7 
Wall.  44.  This  is  the  only  particular  in  which  the  rule  in  regard  to 
remote  and  proximate  causes  is  applied  differently  in  actions  on  fire 
insurance  policies  from  the  application  of  it  in  other  actions.  A 
failure  sometimes  to  recognize  this  rule  as  standing  on  independent 
grounds,  and  established  to  carry  out  the  intention  of  the  parties  to 
contracts  of  insurance,  has  led  to  confusion  of  statement  in  some  of 
the  cases.  The  difficulty  in  applying  the  general  rule  in  complicated 
cases  has  made  the  interpretation  in  some  of  the  decisions  doubtful; 
but  on  principle,  and  by  the  weight  of  authority  in  many  well  con- 
sidered cases,  we  think  it  clear  that,  apart  from  the  single  exception 
above  stated,  the  question,  What  is  a  cause  which  creates  a  liability? 
is  to  be  determined  in  the  same  way  in  actions  on  policies  of  fire 
insurance  as  in  other  actions.  Scripture  v.  Lowell  Ins.  Co.,  10  Cush. 
356;  New  York  &=  Boston  Despatch  Express  Co.  v.  Traders  &' 
Mechanics'  Ins.  Co.,  132  Mass.  377;  St.  John  v.  American  his.  Co..,  i 
Kernan,  516;  General  Ins.  Co.  v.  Sherwood,  14  How.  351;  Insurance 
Co.  V.  Tweed,  7  Wall.  44;  Waters  v.  Merchants'  Louisville  Ins.  Co.,  11 
Pet.  213,  225;  Livie  V.  Janson,  12  East,  648;  lonides^.  Universal  Ins. 
Co.,  14  C.  B.  (N.  S.)  259;  Transatlantic  Ins.  Co.  v.  Dorsey,  56  Md. 
70;   United  Ins.  Co.  ^\  Foote,  22  Ohio  St.  340. 

In  the  present  case,  the  electricity  was  one  of  the  forces  of  nature, 
—  a  passive  agent  working  under  natural  laws,  — whose  existence 
was  known  when  the  insurance  policies  were  issued.  Upon  the 
theory  adopted  by  the  jury,  the  fire  worked  through  agencies  in  the 
building,  the  atmosphere,  the  metallic  machinery,  electricity,  and 
other  things;  and  working  precisely  as  the  defendants  would  have 
expected  it  to  work  if  they  had  thoroughly  understood  the  situation 
of  the  laws  applicable  to  the  existing  conditions,  it  put  a  great  strain 
on  the  machinery  and  did  great  damage.  No  new  cause  acting 
from  an  independent  source  intervened.  The  fire  was  the  direct 
and  proximate  cause  of  the  damage  according  to  the  meaning  of  the 
words  "direct  and  proximate  cause,"  as  interpreted  by  the  best 
authorities.  The  instructions  to  the  jury  were  full,  clear,  and  correct, 
and  the  defendants'  requests  for  instructions  were  rightly  refused. 

Exceptions  overruled.' 


Negligence.  —  In  Gove  v.  Ins.  Co.,  48  N.  H.  41,  the  insane  wife  of 
the  insured  set  fire  intentionally  to  the  insured  buildings.  The 
company  defended  on  the  ground  that  it  was  gross  carelessness  to 

'  See  also  Ins.  Co.  v.  Boon,  95  U.  S.  117. 


l82  THE   TERMS   OF   THE    INSURANCE    CONIRACT. 

leave  the  insane  person  alone  on  the  premises,  and  that  gross  care- 
lessness is  a  good  defense  to  the  action  upon  the  policy.  The  court 
said:  "  The  doctrine  now  appears  to  be  well  settled  by  the  authori- 
ties, that  a  loss  by  fire  on  land,  occasioned  by  the  mere  fault  and 
negligence  of  the  insured  party,  his  servants  or  agents,  without 
fraud  or  design,  is  a  loss  protected  by  the  policies,  and  as  such 
recoverable  from  the  underwriters.  Judge  Story  in  IVaiers  v.  T/ie 
Merchants  Louisville  Ins.  Co.,  ii  Peters,  213;  Sherwood  v.  General 
Mutual  Ins.  Co..,  14  Howard,  351;  3  Kent's  Com.  374,  and  notes; 
Ruck  v.  Royal  Exchange  Co.,  Angell  on  Ins.  §§  124-5  and  122;  2 
Barn.  &•  Aid.  73;  Dixon  v.  Sadler,  5  M.  &  W.  405.  8  M.  cS:  W.  894; 
Shaw  v.  Robarts,  6  A.  «&  E.  75.  Generally,  negligence  is  not  design. 
Catlin  V.  The  Springfield  Fire  Ins.  Co.,  i  Sumner,  434,  The  court  in 
the  State  of  New  York,  say  that  before  this  ground  of  defense  can 
be  made  available,  there  must  be  evidence  of  such  a  degree  of  neg- 
ligence as  will  evince  a  corrupt  design.  Hyndes  v.  Schenectady 
County  Mui.  Ins.  Co.,  16  Barb.  119.  There  are  cases  of  gross  negli- 
gence which  are,  in  law,  deemed  equivalent  to  a  fraudulent  pur- 
pose or  design,  founded  on  the  consideration  of  doing  nothing, 
when  the  slightest  care  on  the  part  of  the  insured  would  prevent  a 
great  injury.  Judge  Shaw  supposes  the  case  where  the  insured,  in 
his  own  house,  sees  the  burning  coals  in  the  fire-place  roll  down  on 
his  wooden  floor,  and  does  not  brush  them  up.  This  would  be  non- 
feasance, and  evidence  of  a  culpable  recklessness,  and  indifference 
to  the  rights  of  others.  He  also  supposes  the  insured  premises  to 
take  fire,  and  the  flames  beginning  to  kindle  in  a  small  spot,  which 
a  cup  of  water  might  put  out,  and  the  insured  has  the  water  at  hand, 
but  neglects  to  put  it  out,  this,  also,  would  be  culpable  negligence, 
manifesting  a  willingness  differing  little  in  character  from  a  fraudu- 
lent and  criminal  purpose  to  commit  injury  to  others.  Chandler  v. 
IVor  Chester  Alut.  Fire  Ins.  Co.,  3  Cush.  328,  31  Maine,  219;  Hue  kins 
V.  Insurance  Co.,  31  N.  H.  238;  Angell  on  Ins.  §  130.  *  *  * 
We  cannot  see  in  this  case  evidence  of  the  existence  either  of  design 
or  of  that  degree  of  negligence  or  carelessness  which  will  constitute 
a  legal  defense  for  the  defendants." 

Explosion.  — Where  there  is,  in  the  policy,  no  provision  as  to  explosion. 
In  Millaudon  v.  Ins.  Co.,  4  La.  Ann.  15,  it  was  held  that  the  policy 
did  not  cover  loss  caused  by  an  explosion  of  steam  boilers,  no  dam- 
age having  been  caused  by  fire.  But  in  Scripture  v.  Ins.  Co.,  10 
Cush.  356,  a  burning  match  applied  to  a  cask  of  gunpowder  in  a 
house,  caused  damage  to  the  house;  that  damage  being  in  part 
from  combustion  and  in  part  from  explosion.  The  policy  insured 
"against  loss  or  damage  by  fire."     The  court  said:     "  Where  the 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  183 

effects  produced  are  the  immediate  results  of  the  action  of  a  burning 
substance  in  contact  with  a  building,  it  is  immaterial  whether  those 
results  manifest  themselves  in  the  form  of  combustion,  or  of  explo- 
sion, or  of  both  combined.  In  either  case,  the  damage  occurring 
is  by  the  action  of  fire  and  covered  by  the  ordinary  terms  of  a 
policy  against  loss  by  fire." 

Where  there  is,  in  the  policy,  a  provision  as  to  explosion.  In  The  Boat- 
man s  Fire  and  Marine  Ins.  Co.  v.  Parker,  23  Ohio  St.  85,  where  the 
policy  provided  that  the  company  shall  not  be  liable  "  for  damage 
occasioned  by  the  explosion  of  a  steam  boiler,  nor  for  damage 
resulting  from  such  explosion,  nor  explosions  caused  by  gunpowder, 
gas  or  other  explosive  substances  *  *  *  unless  otherwise 
expressly  provided,"  the  insured  was  allowed  to  recover  for  damage 
by  fire  resulting  from  an  explosion  of  gas.  In  United  Fire,  Life  and 
Marine  Ins.  Co.  v.  Foote,  22  Ohio  St.  340,  the  policy  provided  that 
the  company  shall  not  be  liable  for  "  any  loss  or  damage  occasioned 
by,  or  resulting  from,  any  explosion  whatever,"  etc.  A  fire  followed 
an  explosion  of  spirit  vapor  ignited  by  the  flame  of  a  gas  jet  and  the 
insured  was  not  allowed  to  recover  for  loss  occasioned  by  this  fire. 

In  Briggs  v.  Ins.  Co.,  53  N.  Y.  446,  the  plaintiffs  were  engaged  in 
the  business  of  rectifying  spirits  and  insured  their  machinery  by  a 
policy  which  contained  this  provision:  "  This  company  shall  not  be 
liable  for  loss  caused  by  *  *  *  explosions  of  any  kind,  unless 
fire  ensues  and  then  for  the  loss  or  damage  by  fire  only."  Vapor 
from  the  works  coming  in  contact  with  a  burning  lamp  caused  an 
explosion  which  injured  the  machinery.  No  recovery  was  allowed 
for  the  damage  caused  by  the  explosion,  the  court  saying,  "The 
plaintiffs  insist,  however,  that  an  explosion  caused  by  fire  is  a  fire, 
and  therefore  the  defendant  is  liable  for  the  explosion,  as  for  a  fire. 
But  that  reasoning  gives  no  force  to  the  exception.  It  allows  a 
recovery  for  the  explosion,  when  the  policy  expressly  stipulates  that 
the  defendant  will  not  be  liable  for  that.  *  *  *  There  was  no 
fire  prior  to  this  explosion.  The  burning  lamp  was  not  a  fire  within 
the  policy.  The  machinery  was  not  on  fire,  as  such  a  term  is  ordi- 
narily used,  until  after  the  explosion.  The  explosion  here  was  the 
principal  and  the  fire  the  incident." 

Loss  caused  by  the  explosion  of  a  lamp  is  covered  by  a  policy 
which  provides  that  the  company  shall  not  be  liable  for  loss  caused 
by  "  explosions  of  any  kind  whatever;"  the  argument  being  that 
the  exception  covered  by  this  section  is  to  be  restricted  to  losses 
arising  from  explosions,  rather  than  extended  to  the  much  broader 
ground  of  losses  by  fire  originating  from  explosions. — Heffronv, 
Ins.  Co.,  132  Pa.  580. 


l84  THE   TERMS   OF   THE   INSURANCE   CONTRACT. 

Falling  Building.  —  In  Ermcntrout  v.  Ins.  Co.,  63  Minn.  305, 
the  policy  stipulated  :  "  If  a  building  or  any  part  thereof  fall,  except 
as  the  result  of  fire,  all  insurance  by  this  policy  on  such  building  or 
its  contents  shall  immediately  cease."  The  insured  building  was 
adjacent  to  another  used  as  a  feed  mill,  the  wall  between  them  being 
a  partition  wall.  The  feed  mill  caught  fire  before  the  insured  build- 
ing fell,  and  that  fall  was  caused  by  the  partial  consumption  of  the 
feed  mill  and  the  weakening  of  the  partition  wall.  No  part  of  plain- 
tiff's building  was  actually  ignited  or  consumed  by  fire.  In  holding 
that  the  falling  of  the  insured  building  was  a  direct  "  loss  or  dam- 
age by  fire,"  within  the  meaning  of  the  policy,  the  court  said,  speak- 
ing of  the  exception:  "  We  think  it  has  reference  only  to  cases 
where  the  building  might  fall  from  some  other  cause  than  fire,  — as, 
for  example,  defective  construction,  the  withdrawal  of  necessary 
support,  storm,  flood  or  other  like  cause, — and  fire  thereafter 
ensued.  But  it  was  not  intended  to  exclude  cases  where  fire  was  the 
immediate  or  proximate  cause  of  the  fall.  To  render  the  fire  the 
immediate  or  proximate  cause  of  the  loss  or  damage,  it  is  not  neces- 
sary that  any  part  of  the  insured  property  actually  ignited  or  was 
consumed  by  fire.  *  *  *  'phe  question  is,  was  fire  the  efficient 
and  proximate  cause  of  the  loss  or  damage." 

As  to  what  constitutes  a  fallen  building  see  Fireman' s  Fund  Ins. 
Co.  V.  Sholm,  80  111.  558,  where  it  was  held  that  the  building  had  not 
fallen  when,  by  a  windstorm,  it  had  been  moved  partly  off  the  posts 
upon  which  it  rested.  The  building  remained  united  although  it 
leaned  toward  the  street  and  was  so  far  rendered  unfit  for  occupancy 
that  most  of  the  movable  furniture  had  been  taken  out.  In  Huck 
V.  Ins.  Co.,  127  Mass.  306,  the  building  was  held  to  have  fallen,  since 
nothing  remained  standing  but  the  outer  walls  and  the  elevator  five 
feet  square,  in  one  corner.  See  also  upon  this  point.  Insurance  Co. 
V.  Crunk,  91  Tenn.  376. 

Lightning.  — In  Babcock  v.  Ins.  Co.,  6  Barb.  637  (affirmed  in  4  N. 
Y.  326),  the  building  was  insured  generally  against  loss  by  fire  and 
in  a  separate  clause  the  policy  declared  that  the  insurers  would  be 
liable  for  fire  by  lightning.  The  declaration  alleged  that  the  build- 
ing "  was  struck  by  lightning  and  was  thereby  prostrated  and 
demolished."  Demurrer  on  the  ground  that  the  declaration  did  not 
show  that  the  building  as  consumed  or  injured  by  fire.  It  was  held 
that  the  plaintiff  had  not  averred  a  loss  tvithin  the  meaning  of  the 
policy. 

Removal  for  Safety.  —  It  was  held  in  White  v.  Ins.  Co.,  57  Me. 
91,  that  the  damage  and  expense  caused  by  removing,  with  that 
reasonable  degree  of  care  suited  to  the  occasion,  insured  goods  from 


TERMS   OF   THE   FIRE    LN'SU RANGE   CONTRACT.  l8$ 

an  apparent  imminent  destruction  by  fire,  are  covered  by  a  policy 
insuring  against  "  loss  or  damage  by  fire,"  although  the  building  in 
which  they  were  insured  and  from  which  they  were  thus  removed, 
was  not  in  fact  injured  by  the  fire. 


c.  Respecting  Matters  After  Loss. 

I.   Proofs  of  Loss. 
BUMSTEAD  v.  DIVIDEND  MUTUAL  INSURANCE  CO. 

12  N.  Y.  8i.  — 1S54. 

Action  on  a  policy  of  insurance,  tried  before  a  referee,  who  found 
for  the  plaintiff.     The  judgment  ordered  by  the  referee  was  afifirmed. 

W.  F.  Allen,  J. — *  *  *  The  plaintiff,  as  a  condition  precedent 
to  his  right  to  recover  was,  by  the  by-laws  of  the  company,  bound 
to  give  notice  forthwith  of  his  loss,  and  within  thirty  days  deliver  in 
a  particular  account  of  such  loss  or  damage,  signed  with  his  own 
hand  and  verified  hy  his  oath  or  affirmation,  and  also,  if  required, 
by  his  books  of  account  and  other  proper  vouchers;  and  by  the 
condition  annexed  to  the  policy,  he  was  bound  to  furnish  an  inven- 
tory of  all  property  destroyed  or  damaged,  giving  the  value  in  cash 
of  the  damage  sustained  to  each  item  —  whether  a  building  or  other 
property  —  verified  by  his  affidavit.  The  conditions  are  reasonable, 
and  for  the  benefit  of  the  insurers,  to  enable  them  to  decide  upon 
their  rights  and  the  extent  of  their  liability  before  they  are 
called  upon  to  pay;  and  no  liability  attaches  until  they  have  been 
complied  with  by  the  insured.  Mann  v.  Harvey^  8  Exch.  Rep. 
819. 

What  shall  be  considered  a  performance,  so  as  to  entitle  a  party 
to  insist  upon  payment  of  a  loss  withm  the  policy,  depends  upon  the 
true  construction  of  the  contract  of  the  parties.  A  strict  interpreta- 
tion of  the  language  employed  would  not  unfrequently  prevent  a 
recovery  against  the  company,  as  no  exceptions  are  made  to  the 
requirement  to  furnish  the  inventory  and  produce  the  books  of 
account  and  other  vouchers.  The  inventory  required  is  one  strictly 
accurate,  not  approximating  to  accuracy,  and  made  according  to 
the  best  knowledge  the  party  may  have.  Such  a  statement,  although 
made  out  with  all  care  and  honesty,  and  really  affording  to  the 
insurers  all  the  information  they  could  reasonably  desire,  would  not 
be  an  inventory  of  the  property  destroyed  within  the  literal  condi- 


l86  THE   TERMS    OF   THE    INSURANCE   CONTRACT. 

liop.  So  the  iiDii-production  of  the  books  and  vouchers  which  had 
been  destroyed  by  the  very  fire  against  which  the  party  had  sought 
an  indemnity  would  effectually  defeat  his  claim  under  his  policy. 
Such  an  interpretation  would  be  unreasonable,  and  cannot  be 
supposed  to  have  been  in  the  minds  of  the  contracting  parties 
at  the  time  the  insurance  was  effected. 

The  construction  of  these  conditions  should  be  reasonable,  and  as 
near  the  apparent  intent  of  the  parties  as  may  be  consistent  with 
the  terms  employed,  taking  into  consideration  the  motives  that  led 
to  their  insertion  in  the  contract  and  the  object  intended  to  be 
effected  by  them.  It  was  not  practicable  for  the  parties  to  provide 
for  every  case  which  might  arise,  but  they  could  and  did  provide  in 
general  terms  for  ordinary  cases,  and  having  done  so,  extraordinary 
cases  and  exceptions  were  necessarily  left  to  be  decided  upon  the 
general  principles  which  they  prescribed  for  those  most  likely  to 
happen.  Ordinarily  the  books  of  the  insured  might  be  preserved 
and  capable  of  production  at  the  call  of  the  insurer,  and  hence  their 
production,  if  called  for,  was  made  a  condition  precedent  to  the 
liability  of  the  underwriter.  This  clause  should  not,  however,  be 
so  construed  as  to  require  the  party  to  produce  books  which  he  had 
not,  and  which,  without  fault  on  his  part,  he  could  not  produce. 
So,  if  all  means  of  making  an  accurate  inventory  of  the  property 
destroyed  were  lost,  the  condition  should  be  so  construed  as  only 
to  require  the  best  and  most  perfect  statement  which  the  party  could 
make.  This  class  of  conditions,  anne.xed  to  and  making  a  part  of 
contracts  of  insurance,  has  always  been  liberally  construed  as 
requiring  only  good  faith  on  the  part  of  the  assured  and  the  best 
evidence  of  his  loss  which  he  could  give,  and  so  as  to  secure  to  the 
insurer  all  the  substantial  benefits  of  the  conditions.  If  this  has 
been  found  necessary,  in  former  times,  in  order  to  give  effect  to  the 
contract  of  insurance  as  a  real  and  not  an  illusory  contract  of  indem- 
nity, it  is  still  more  necessary  now,  when,  with  the  multiplication  of 
companies  holding  themselves  out  as  insurance  companies  and  bid- 
ding for  risks,  legal  ingenuity  and  practical  experience  and  skill 
have  been  exerted  to  the  utmost  to  devise  terms  and  conditions  and 
new  and  unheard-of  provisions  by  which  the  nominal  underwriters 
may  guard  against  a  le^.al  liability  in  case  of  a  loss  of  the  property 
insured  by  the  perils  proposed  to  be  insured  against. 

The  only  safety  for  the  insured  is  to  apply  the  same  rules  of  con- 
struction to  the  new  terms  and  conditions  which  have  been  by  the 
courts  applied  to  the  same  contract  heretofore,  and  to  give  them 
that  reasonable  construction  which  good  faith  and  good  sense 
require.      In  Norton  v.  Rensselaer  er*  Saratoga  Company^  7   Cow.  649, 


TERMS   OF   THE    FIRE    INSURANCE    CONTRACT.  187 

Savage,  Ch.-  J.,  says:  "  The  clause  requiring  proof  of  marine  losses 
has  been  construed  with  considerable  liberality.  The  courts  have 
looked  to  the  circumstances,  and  required  no  more  information  of 
the  party  than  what  appeared  to  be  within  his  control;  "  and  the 
same  liberal  construction  was  in  that  case  extended  to  a  fire  policy. 
Thompson,  J.,  in  Lamere  v.  The  Ocean  Insurance  Company,  11  J.  R. 
260,  says:  "  Tliis  clause  has  always  been  liberally  expounded, 
and  is  construed  to  require  only  the  best  evidence  of  the  fact 
which  the  party  possesses  at  the  time."  Such  has  been  the  uniform 
construction  put  upon  it  by  the  courts.  See  also  2  J.  R.  136;  8  I  J. 
317;  McLaughlin  v.  The    Washington  County  Mutual  Ins.  Co..,  23   W. 

R-  525. 

The  "  particular  account  of  the  loss  or  damage,"  and  the  "inven- 
tory of  all  property  destroyed  or  damaged,  giving  the  value  in  cash 
of  the  damage  sustained  to  each  item,"  require  the  party  only  to 
furnish  a  statement  as  particular  and  full  as  he  can  under  the  cir- 
cumstances make.  The  books  and  papers  of  the  plaintiff  having 
been  destroyed  by  the  same  fire  which  consumsd  the  merchandise 
insured,  he  is  thus  deprived  of  the  only  means  by  which  he  could 
comply  literally  with  the  conditions  of  the  policy,  and  a  less  par- 
ticular statement  is  sufficient  and  all  that  is  called  for  within  the 
fair  meaning  and  intent  of  the  parties  as  expressed  in  the  contract 
by  the  conditions.      *     *     * 

The  plaintiff,  in  his  first  statement  of  loss,  says  that  the  entire 
amount  of  the  property  contained  in  his  store  and  partly  covered  by 
said  insurance,  that  is,  insured  to  a  part  of  its  value,  together  with 
his  books  and  papers,  was  destroyed  by  fire;  that  the  total  amount 
of  property  in  said  store,  owned  by  him  and  destroyed,  was  at  least 
$2,000,  and,  as  he  believed,  much  more,  but  from  the  destruction 
of  his  books,  papers,  bills  of  purchase  and  inventories  he  was  unable 
particularly  to  set  forth  the  same.  The  fact  that  he  afterwards  ^ 
attempted,  at  the  request  of  the  company,  to  make  a  more  particu- 
lar statement  from  recollection  and  estimate,  as  did  Norton  in  the 
case  in  7  Covven,  does  not  tend  to  invalidate  the  truth  of  the  state- 
ment; and  in  the  absence  of  fraud  or  of  evidence  tending  to  impeach 
its  accuracy,  the  proof  was  a  substantial  compliance  with  the  condi- 
tions of  insurance  and  the  by-laws  of  the  company,  and  sufficient  to 
entitle  the  plaintiff  to  recover.  The  conclusion  to  which  I  have 
come  upon  the  question  considered,  renders  it  unnecessary  to  exam- 
ine the  other  question,  which  is  of  less  general  interest,  to  w^it, 
whether  the  defendnts  did  not,  by  receiving  and  acting  upon  the 
proofs  furnished,  without  objections,  assent  to  their  sufficiency  and 
waive  any  formal  objection  which  might  have  been  taken  to  them. 


l88  THE   TEF^MS   OF   THE    INSURANCE   CONTRACT. 

Bat  upon  this  ground  I  think  there  is  sufficient  evidence  in  the  case 
to  warrant  the  decision  and  uphold  the  judgment  in  the  court 
below.     *     *     * 

Affirmed.' 


2.  Magistrate's  Certificate. 

Mitchell,  J.,  in  LANE  r.  INSURANCE  CO. 

50  Minn.  227.  —  1892. 

The  policy  sued  on  contained  a  provision  that  the  insured  "  shall, 
if  required,  furnish  a  certificate  of  the  magistrate  or  notary  public 
(not  interested  in  the  claim  as  a  creditor  or  otherwise,  nor  related 
to  the  insured)  living  nearest  the  place  of  fire,  stating  that  he  has 
examined  the  circumstances,  and  believes  the  insured  has  honestly 
svistained  loss  to  the  amount  that  such  magistrate  or  notary  public 
shall  certify."  It  also  provided  that  "  no  suit  or  action  on  this 
policy  for  the  recovery  of  any  claim  shall  be  sustainable  in  any  court 
of  law  or  equity  until  after  full  compliance  by  the  insured  with  all 
the  foregoing  requirements."     *     *     * 

Provisions  similar  to  this  are  as  old  as  fire  insurance  policies 
themselves,  and  the  doctrine  has  been  established  by  a  uniform  cur- 
rent of  authorities  in  England  and  this  country,  beginning  with 
Oldman  v.  Benncke,  2  H.  Bl.  577,  and  Rontledge  v.  Burrell,  i  H.  Bl. 
254,  that  the  production  of  such  certificate,  unless  the  insurance 
company  itself  has  prevented  the  obtainiag  it,  or  waived  its  want. 


'  Accord,  People's  Ins.  Co.  v.  Piilver,  127  111.  246.  Where  the  policy  provided 
thai  the  proofs  of  loss  must  be  "'  rendered  "  within  60  days,  it  was  held  sufficient 
if  the  proofs  were  mailed  within  60  days,  although  not  received  within  that 
^^x\oA.—  Manufacturer' s  Ins.  Co.  v,  Zeitinger,  168  111.  286.  If  the  policy  pro- 
vides thai  in  case  of  loss  the  insured  "  shall  give  immediate  notice  thereof  and 
shall  render  to  the  company  a  particular  account  of  said  loss  under  oath," 
embracing  certain  facts  specified,  it  is  the  duty  of  the  insured  to  furnish  the 
proofs  of  loss  within  a  reasonable  time,  the  court  saying,  in  Carpetiier  v.  Ins. 
Co.,  135  N.  Y.  298,  303:  "  What  is  such  reasonable  time  may  become  a  ques- 
tion of  law  as  where  there  has  been  a  long  delay  unexcused.  *  *  *  Bat  in 
cases  where  circumstances  are  shown  which  reasonably  justify  the  delay  or  the 
insured  acted  with  reasonable  promptness  in  view  of  all  the  facts  disclosed 
having  regard  both  to  his  own  situation  and  the  protection  of  the  company,  it 
may  be  a  question  for  the  jury  whether  the  provision  as  to  proofs  has  been  vio- 
lated." 

Notice  of  Loss.  "Under  the  provision  of  the  policy  requiring  notice  of  loss 
to  be  '  forthwith  '  given,  it  was  enough  for  the  insured  to  act  in  that  matter  with 
diligence  and  without  unnecessary  delay."  —  Griffey  v.  Ins.  Co.,  100  N.  Y.  417, 
421. 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  189 

is  a  condition  precedent  to  the  right  of  the  insured  to  recover;  that 
the  assured,  by  accepting  the  policy,  assents  to  the  condition;  that 
it  is  one  which  the  company  has  a  right  to  impose,  and  for  which  it 
is  not  bound  to  accept  any  substitute ;  that  the  inability  of  the 
insured  to  furnish  it  because  of  the  refusal  of  the  magistrate  or 
notary,  for  any  cause  whatever,  to  give  it,  will  not  relieve  him  from 
the  performance  of  the  condition;  that  the  case  comes  within  the 
rule  by  which  one  who  engages  for  the  act  of  a  stranger  must  pro- 
cure the  act  to  be  done,  and  the  refusal  of  the  stranger  without  the 
interference  of  the  other  party  is  no  excuse.  The  inability  of  the 
insured  to  procure  the  certificate  because  of  such  refusal  does  not 
render  the  condition  impossible  in  the  legal  sense,  so  as  to  excuse 
the  party  from  performing  his  contract.  The  cases  on  the  subject 
will  be  found  cited  in  any  text-book  on  fire  insurance,  but  among  a 
few  of  the  leading  ones  are  IVorsley  v.  Wood,  6  Term  R.  710;  Insur- 
ance Co.  V.  Laivrence,  2  Pet.  25,  10  Pet.  507;  Roumage  v.  Insurance 
Co.,  13  N.  J.  Law,  no;  Leadbetter  v.  Insurance  Co.,  13  Me.  265;  John- 
son V.  Insurance  Co.,  112  Mass.  49.  We  are  not  aware  of  a  single 
authority  to  the  contrary,  except  a  suggestion,  in  Insurance  Co.  v. 
Miers,  5  Sneed,  139,  that  such  a  condition  is  directory  only,  and  a 
dictum,  in  Insurance  Co.  v.  Block,  109  Pa.  St.  535,  i  Atl.  Rep.  523, 
repeated  in  Davis  Shoe  Co.  v.  Kittanning  Ins.  Co.,  138  Pa.  St.  73,  20 
Atl.  Rep.  838,  that  such  conditions  are  void  for  the  reason  that  an 
insurance  company  has  no  right  to  require  a  public  officer  to  act  in 
the  adjustment  of  losses.  But  this  was  expressly  overruled  by  the 
same  court  in  Kelly  v.  Sun  Fire  Office  141  Pa.  St.  10,  21  Atl.  Rep. 
447.  While  the  doctrine  that  such  stipulations  are  valid  and  consti- 
tute a  condition  precedent  to  the  insured's  right  to  recover  is 
unquestionably  sound  in  principle,  yet,  as  they  often  operate 
harshly  in  practice,  they  ha^e,  in  some  States,  been  expressly  or 
impliedly  prohibited  by  statutes  regulating  the  form  of  policies. 
See  Shannon  v.  Insurance  Co.,  2  Ont.  App.  81;  Insurance  Co.  v. 
Johnson,  46  Ind.  315.  But  there  is  no  room  in  this  State  for  hold- 
ing such  conditions  void  or  unreasonable,  for  they  have  been  incor- 
porated into  the  Minnesota  standard  policy  by  the  insurance 
commissioner,  under  the  authority  vested  in  him  by  Laws  1889, 
c.  217,  by  the  provisions  of  which  all  fire  insurance  policies  are 
required  to  conform  to  the  form  prepared  by  him,  and  any  other  or 
different  form  is  prohibited.' 

"^Contra:  "  The  right  of  a  citizen  to  maintain  an  action  in  the  courts  of  this 
state  is  fixed  by  the  constitution  and  the  laws  thereof,  and  we  do  not  think  that 
right  can  be  made  to  depend  upon  the  whim  of  a  justice  of  the  peace  or  a  notary 
public.     Suppose  that  this  justice  of  the  peace  should  be  the  enemy  of  the  insured 


igO  THE    TERMS    OF   THE    INSURANCE   CONTRACT. 

3.   Examination  of  the  Insured. 
HiNMAN,  C.  J.,  IN  HARRIS  V.  PHCENIX  INSURANCE  CO. 

35  Conn,  310,  312.  —  1868. 

One  of  the  conditions  in  the  policy  is  "  that  the  assured  shall,  if 
required,  submit  to  an  examination  under  oath  by  any  person 
appointed  by  the  company,  and  if  deemed  necessary  by  the  com- 
pany, to  a  second  examination,  and  subscribe  to  such  examination 
when  reduced  to  writing;  and  shall  also  produce  his  books,  etc." 
And  then  the  policy  provides  by  an  express  stipulation,  that  "  until 
such  proofs,  declarations  and  certificates  are  produced  and  exami- 
nations and  appraisals  permitted,  the  loss  shall  not  be  payable." 
*  *  *  As  the  plaintiffs  stand  upon  the  right  of  the  assured,  Bass, 
and  are  in  no  better  condition  than  he  would  be,  were  he  now  prose- 
cuting his  suit  for  damages  caused  by  the  loss,  {Dewit  v.  Baldwin, 
I  Root,  138,)  It  becomes  important  to  determine  whether  the  stipu 
lation  for  his  personal  examination  is  a  condition  precedent  to  his 
right  under  the  policy.  The  plaintiffs  insist  that  it  is  not  such  a 
condition    in    this    case,    because    it    does    not    appear    that  notice 

or  for  any  other  reason  should  refuse  to  furnish  the  insured  a  certificate  of 
good  moral  character,  and  should  refuse  to  examine  into  the  circumstances 
attending  the  loss  and  the  financial  condition  of  the  insured.  How  is  the 
insured  to  compel  the  making  of  this  certificate?  We  are  aware  that  the 
supreme  court  of  the  state  of  Minnesota  in  Lane  v.  fnsurante  Co.,  50  Minn.  227, 
sustained  a  provision  like  the  one  under  consideration,  and  held  that  the  furnish- 
ing of  the  certificate  was  a  condition  precedent  to  the  right  of  the  insured  to 
recover,  and  that  his  inability  to  furnish  the  certificate  because  of  the  refusal  of 
ihe  magistrate  to  give  it  afforded  no  excuse  for  the  insured's  failure.  But  it  is 
to  be  remembered  that  in  that  state  the  legislature  prescribes  the  terms  and  con- 
ditions of  all  fire  insurance  policies,  and  such  was  the  policy  considered  in  the 
case  last  cited.  Furthermore,  the  constitution  of  this  state  provides  that  "  all 
courts  shall  be  open,  and  every  person,  for  any  injury  done  him  in  his  lands, 
goods,  person  or  reputation,  shall  have  a  remedy  by  due  course  of  law,  and 
justice  administered  without  denial  or  delay."  (Constitution,  Section  13,  Art.  i.) 
It  may  be  that  the  legislature  has  the  authority  to  provide  that  before  an  insured 
can  maintain  an  action  in  the  courts  to  recover  for  a  loss  on  an  insurance  policy 
he  must  procure  the  certificate  of  a  magistrate  next  to  where  the  loss  occurred 
that  he  has  examined  into  the  conditions  of  the  loss,  and  believes  that  it 
occurred  without  the  fault  of  the  insured,  that  the  insured  is  of  good  moral 
character,  and  that  he  is  acquainted  with  his  financial  condition.  But  we  shall 
hesitate  a  great  while  before  we  uphold  any  such  provision  as  this,  in  the 
absence  of  express  legislation  requiring  it."  — Home  Co.  v.  Ilammanfi.  44  Neb. 
566,  577. 

The  New  York  courts  are  not  fivoiable  to  a  rigid  interpretation  of  the  provi- 
sion. Turley  v.  Co.,  25  Wend.  374;  Gilligan  v.  Co.,  20  Hun,  93,  aff'd  87  N.  Y. 
626;  McNally  v.  Co.,  137  N.  Y.  389. 


TERMS   OF   THE   FIRE   INSURANCE    CONTRACT.  I9I 

that  a  personal  examination  was  required  has  ever  been  brought 
home  to  the  assured.  If  this  was  so  in  consequence  of  the 
fault  of  the  defendants  there  would  doubtless  be  force  in  the  sugges- 
tion. But  the  defendants  have  not  been  in  fault.  Having  used  due 
diligence  to  notify  the  assured  that  they  required  the  performance 
of  this  stipulation,  they  clearly  ought  not  to  be  held  to  have  waived 
its  performance.  If  the  assured  has  intentionally  absented  himself 
so  that  he  cannot  be  notified  that  performance  of  the  stipulatiu.i  is 
required,  he  should  be  held  to  have  had  notice.  And  if  for  any 
cause,  whether  by  his  fault  or  otherwise,  he  cannot  be  mLified,  that 
may  be  his  misfortune  or  the  misfortu-ne  of  those  claiming  under  or 
through  him,  but  is  no  reason  for  treating  as  inoperative  an  impor- 
tant stipulation  which  the  defendants  saw  fit  to  require,  and  the 
assured  to  give,  as  a  condition  which  was  to  be  complied  with  before 
there  could  be  any  obligation  to  pay  for  the  loss.' 

'  "Another  plea  set  forth  as  a  bar  to  the  action  is,  that  the  insured  refused  to 
submit  his  books  and  invoices  for  examination  when  requested.  This  plea  was 
based  upon  one  of  the  conditions  of  the  policy  to  which  the  plaintiff  assented. 
All  the  insured  wa.9.  entitled  to  recover,  in  the  event  of  a  loss,  was  pay  for  goods 
actually  destroyed.  Books  of  account  and  invoices  are  the  only  means,  in  most 
cases,  of  arriv^ing  at  such  amount  of  the  liability  of  the  company.  Where  an 
insurance  policy  makes  it  incumbent  on  the  insured,  in  the  event  of  a  loss,  to 
proiuce  his  books  or  invoices  for  examination,  he  must  comply  with  such  pro- 
vision or  he  cannot  recover.  yu6e  v.  Insurance  Co.,  48  Batb.  412;  Haff  \.  Insur- 
ance Co.,  4  Johns.  132;  0' Brien  v.  Insurance  Co.,  63  N.  Y.  108;  Phillips  v.  Insur- 
ance Co.,  14  Mo.  220;  Bonner  v.  Insurance  Co.,  13  Wis.  677;  Harris  v.  Insurance 
Co.,  35  Conn.  3ro;  Thomas  ".  Insurance  Co.,  47  Mo.  App.  169.  It  is  urged  by 
appellee  as  a  reason  for  not  complying  with  this  provision,  that  he  kept  no 
books  of  account.  But  that  is  not  a  sufficient  legal  avoidance  of  this  condition. 
*  *  *  In  this  case  the  insured  obligated  himself  to  produce  his  books  of 
account  and  invoices,  so  that,  in  the  event  of  a  loss,  the  insurance  company 
might  have  before  it  some  evidence  of  the  amount  of  loss  sustained  by  him. 
This  condition  contracted  by  him  to  be  observed  wis  a  reasonable  one,  and  a 
failure  on  his  part  to  comply  therewith,  without  some  excuse  therefor,  pre- 
sented a  sufficient  defense  by  appellant,  which  it  could  only  set  up  by  way  of 
special  plea.  The  plea  of  the  appellant,  therefore,  which  set  up  this  defense, 
was  a  proper  one,  and  the  demurrer  to  it  should  have  been  overrulsd."  — 
Niagara  Ins.  Co.  v.  Foxhand,  169  111.  626,  629,  630. 

In  Claflin  v.  Ins.  Co.,  no  U.  S.  81,  the  policy  required  that  in  case  of  loss,  the 
assured  should  submit  to  an  examination  under  oath  by  an  agent  of  the  insurer, 
and  that  fraud  or  false  swearing  should  forfeit  the  policy.  It  was  held  that 
although  the  assured  swore  truthfully  as  to  his  actual  loss,  yet  if  he  swore 
falsely  as  to  the  persons  from  whom  he  had  purchased  the  goods  or  the  value  of 
those  purchased  from  a  certain  house,  even  though  the  false  swearing  was  with 
no  intent  to  deceive  the  defendant,  but  was  for  the  purpose  of  deceiving  other  per- 
sons, nevertheless  the  policy  was  forfeited  thereby,  for  the  question  of  assured's 
insurable  interest  was  in  issue  and  these  answers  were  material  upon  that  point. 


192  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

4.   Safe  Clause. 

GEORGIA  HOME  INSURANCE  CO.  v.  ALLEN. 

119  Ala.  436.  —  1S98. 

In  the  policy  upon  which  this  action  was  brought  the  "  iron  safe 
clause  "  was  substantially  that  the  assured  covenanted  and  agreed 
to  keep  a  set  of  books  showing  a  record  of  business  transacted, 
including  all  purchases  and  sales,  both  for  cash  and  credit,  together 
with  the  last  inventory  in  said  business;  to  keep  such  inventory 
securely  locked  in  a  fire-proof  safe  at  night  and  at  all  times  when 
the  store  is  not  actually  opened  for  business  or  in  some  secure  place 
not  exposed  to  a  fire  which  would  destroy  the  house  where  said 
business  is  carried  on;  and  in  case  of  loss  the  assured  covenanted 
and  agreed  to  produce  such  books  and  inventory  and  in  event  of 
failure  to  produce  the  same  the  policy  was  to  be  deemed  null  and 
void. 

Haralson,  J.  —  *  *  *  6.  It  is  well  settled  that  an  iron-safe 
clause,  such  as  the  one  contained  in  this  policy  which  the  insured 
covenanted  to  keep,  is  a  condition,  the  breach  of  which  will  avoid 
the  policy,  but  that  it  is  one  that  may  be  waived,  like  any  other 
conditions.  3  Joyce,  Ins.,  §§  2063,  2064.  The  author,  after  refer- 
ring to  the  authorities  on  the  subject,  concludes:  "  In  a  federal 
case  it  is  held,  a  substantial  compliance  is  sufficient  under  the  '  iron- 
safe  clause,'  requiring  a  set  of  books  and  an  inventory  to  be  securely 
locked  in  a  fireproof  safe  at  night  and  at  all  times  when  the  store  is 
not  actually  open  for  business,  or  in  some  secure  place,  and  that  in 
case  of  loss,  assured  will  produce  said  books  and  inventory;  such 
a  clause  is  a  condition  subsequent  only,  and  a  literal,  exact  fufiU- 
ment  is  unnecessary.  This  decision  certainly  seems  more  in  accord 
with  the  actual  intent  of  the  parties,  and  with  justice  and  reason  of 
the  law,  and  with  the  tendency  of  the  decisions,  than  a  construction 
requiring  an  exact  and  literal  compliance."  Joyce,  Ins.,  §  2063; 
Assurance  Co.  v.  Redding,  15  C.  C.  A.  619,  68  Fed.  708. 

It  has  come  to  be  well  settled,  also,  that  conditions  and  duties  of 
the  assured  prescribed  in  a  policy  of  insurance,  should  be  liberally 
construed  in  favor  of  the  assured,  but  strictly  against  the  insurer. 
Insurance  Co.  v.  Young,  58  Ala.  476;  Tubb  v.  Insurance  Co.,  106  Ala. 
651,  659,  17  South  615. 

In  seeming  recognition  of  these  principles,  the  defendant  requested 
the  fourth  instruction  to  the  jury.  The  plaintiff's  own  evidence 
showed,  without  conflict,  that  he  had  not  made  even  a  substantial 
compliance  with  his  covenants  of  the  iron-safe  clause  of  his  policy. 
He  testified  that  he  made  entries  of  sales  upon  a  pocket  memoran- 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  I93 

dum  book,  and  when  he  got  time  he  would  transfer  these  entries  to 
the  blotter,  and  from  the  blotter  to  the  ledger;  that  he  made  these 
tranfers  of  entries  once  a  week  probably,  and  sometimes  oftener; 
that  at  the  time,  the  four  last  days'  sales  had  not  been  transferred 
to  the  ledger,  and  he  had  lost  his  pocket  memorandum,  book,  and 
the  blotter  had  been  left  on  his  desk  the  night  of  the  fire,  which  he 
sometimes  did,  and  it  had  been  destroyed  by  the  fire;  that  the 
blotter  was  the  only  book  in  which  he  made  entries  of  goods  bought 
and  sold  on  credit;  that  he  made  transfers  from  the  blotter  to  the 
ledger,  sometimes  once  a  day,  sometimes  in  three  days  and  some- 
times not  till  the  end  of  the  week.  He  also  swore  that  the  blotter 
showed  the  amount  of  the  goods  used  out  of  the  store  by  himself 
and  family  for  a  part  of  the  time,  but  that  for  the  months  of  Sep- 
tember, October  and  November,  1894,  he  made  no  entries  in  the 
blotter  or  elsewhere  of  the  goods  or  cash  used  out  of  the  store  by 
himself  and  family,  and  the  adjuster  v/as  left  to  calculation  merely 
as  to  these  items  omitted  from  the  ledger.  The  object  of  the  iron- 
safe  clause  is  to  enable  the  insurer,  in  case  of  a  fire,  to  arrive  more 
accurately  than  he  otherwise  would  be  able  to  do,  at  the  exact 
amount  of  the  loss.  We  are  unable,  therefore,  according  to  plaintiff's 
own  undisputed  showing,  to  say  that  he  complied  substantially, 
even,  with  the  requirements  of  this  covenant.  This  was  sufificient 
to  defeat  a  recovery  by  him,  unless  the  jury  was  satisfied  from  the 
evidence,  that  the  defendant  or  its  agent,  with  full  knowledge  of 
the  forfeiture,  waived  it.  This  is  all  that  the  fifth  instruction  asked, 
and  it  should  have  been  given.     *     *     *  ' 

'  "  This  clause,  now  almost  universally  introduced  into  policies  of  insurance 
of  merchandise  kept  for  sale  against  loss  by  fire,  has  been  of  frequent  consider- 
ation by  the  courts,  and  most  usually,  it  has  not  been  subjected  to  any  narrow- 
ness or  closeness  of  construction.  Legal  effect  has  been  given  it,  for  the 
purpose  of  guarding  the  insurer  against  the  fraud  or  imposition  of  the  insured; 
but  ii.  has  received  a  fair,  reasonable  interpretation,  so  that  it  may  not  work 
forfeitures,  or  defeat  the  claim  of  the  innocent  insured  to  the  indemnity  prom- 
ised by  the  policy.  Liverpool,  etc.,  Ins.  Co.  v.  Ellington,  94  Ga.  785;  Western 
Assurance  Co.  v.  Reddinq,  68  Fed.  Rep.  708;  Standard  Fire  Ins.  Co.  v.  Willock, 
2g  S.  W.  Rep.  218.  In  Liverpool  Ins.  Co.  v.  Ellington,  stipra,  it  is  said  by  the 
court:  '  Under  the  clause  referred  to,  it  was  not  indispensable  that  the  books 
kept  should  embrace  what  is  usually  termed  a  cash  book,  or  that  the  books 
should  be  kept  on  any  particular  system.  It  was  sufficient  if  the  books  were 
kept  in  such  manner  that,  with  the  assistance  of  those  who  kept  them  or  under- 
stood the  system  on  which  they  were  kept,  the  amount  of  purchases  and  sales 
could  be  ascertained,  and  cash  transactions  distinguished  from  those  on  credit.' 
In  Standard  Ins.  Co.  v.  Willock,  supra,  the  court  found  a  '  substantial  compli- 
ance '  with  the  requirements  of  the  clause,  and  sustained  a  recovery  against 
the  insurer." —  Western  Assur.  Co.  v.  McGlathery,  115  Ala.  213,  223. 
LAW  OF  INSURANCE —  1"^ 


194  mt:   rEKMs  of  THt:  insukancl:  contract. 

5.   Akihtkation. 

HAMILTON  r.  HOME  INSURANCE  CO. 

137  U.  S.  370  —  1S90. 

Mr.  Justice  Gray.  — This  case  resembles  in  some  aspects  that 
of  Hamilton  v.  Livcpool^  London  ^s'  Globe  Ins.  Co..,  136  U.  S.  242, 
decided  at  the  last  term,  but  is  essentially  different  in  important  and 
controlling  elements.  In  that  case,  the  effect  of  the  provisions  of 
the  policy,  by  reason  of  which  it  was  held  that  the  assured,  having 
refused  to  submit  to  the  appraisal  and  award  provided  for,  could 
not  maintain  his  action,  was  thus  stated  by  the  court:  "  The  con- 
ditions of  the  policy  in  suit  clearly  and  unequivocally  manifest  the 
intention  and  agreement  of  the  parties  to  the  contract  of  insurance 
that  any  difference  arising  between  them  as  to  the  amount  of  loss 
or  damage  of  the  property  insured  shall  be  submitted,  at  the  request 
in  writing  of  either  party,  to  the  appraisal  of  competent  and  impar- 
tial persons,  to  be  chosen  as  therein  provided,  whose  award  shall  be 
conclusive  as  to  the  amount  of  such  loss  or  damage  only,  and  shall 
not  determine  the  question  of  the  liability  of  the  company;  that  the 
company  shall  have  the  right  to  take  the  whole  or  any  part  of  the 
property  at  its  appraisal  value  so  ascertained;  and  that  until  such 
an  appraisal  shall  have  been  permitted,  and  such  an  award  obtained, 
the  loss  shall  not  be  payable,  and  no  action  shall  lie  against  the 
company.  The  appraisal,  when  requested  in  writing  by  either  party, 
is  distinctly  made  a  condition  precedent  to  the  payment  of  any  loss 
and  to  the  maintenance  of  any  action."  136  U.  S.  254,  255.  That 
policy  looked  to  a  single  appraisal  and  award,  to  be  made  as  one 
thing  and  by  one  board  of  appraisers  or  arbitrators,  whenever  any 
difference  should  arise  between  the  parties,  and  to  be  binding  and 
conclusive  as  to  the  amount  of  the  loss,  although  not  to  determine 
the  question  of   the   liability  of  the  company;  and  the  policy  con- 

"  The  contention  of  counsel  for  the  insurer  is,  that  having  covenanted  to  keep 
the  books  in  a  fireproof  safe,  and,  in  the  event  of  the  loss  by  fire  of  the  properly 
insured,  thereafter,  to  produce  them  before  the  insurer,  the  insured  was  abso- 
lutely bound  to  procure  the  books,  and  that  no  casualty  can  excuse  any  failure 
10  comply  with  this  condition  10  produce  the  books.  *  *  *  The  words 
'  fireproof  safe  '  in  this  policy,  in  view  of  the  situation  of  the  small  country 
merchant,  and  his  needs  for  and  employment  of  an  iron  safe,  can  only  mean 
the  usual  fireproof  safe  used  by  the  country  generally  —  a  safe  composed  of 
incombustible  materials,  and  fitted  to  protect,  to  the  usual  extent  and  in  the 
ordinary  way,  books  and  papers  d;*posited  therein,  and  not  that  rare  and  costly 
structure  (if,  indeed,  such  there  be),  which  is  capable  of  successfully  withstand- 
ing the  action  of  fire  altogether,  and  of  preserving  its  contents  from  harm  abso- 
lutely." —  Sneed  v.  Co.,  73  Miss.  279,  2S2,  283. 


TERMS   OF   THE    FIRE    INSURANCE   CONTRACT.  195 

tained  not  only  a  provision  that  until  such  an  appraisal  the  loss  should 
not  be  payable,  but  an  express  condition  that  no  action  upon  the 
policy  should  be  sustainable  in  any  court  until  after  such  an 
award. 

In  the  case  now  before  us,  on  the  other  hand,  the  appraisal  and 
the  award  are  distinct  things  and  to  take  place  at  separate  times, 
and  the  effect  assigned  to  each  is  quite  different  from  that  given  to 
the  appraisal  and  award  in  the  other  policy.  The  "  appraisal," 
without  which  the  loss  is  not  payable,  is  required  to  be  made,  not 
merely  when  differences  arise  as  to  its  amount,  but  in  all  cases,  and 
results  in  a  mere  "  report  in  writing,"  which  is  not  declared  to  be 
binding  upon  the  parties  in  any  respect,  and  is  in  truth  but  a  part 
of  the  proofs  of  loss  It  is  only  by  a  separate  and  independent 
provision,  and  when  differences  arise  touching  any  loss  "  after  proof 
thereof  has  been  received  in  due  form,"  that  the  matter  is  required, 
at  the  requi;st  of  either  party,  to  be  submitted  to  "  arbitrators, 
whose  award  in  writing  shall  be  binding  on  the  parties  as  to  the 
amount  of  such  loss,  but  shall  not  decide  the  liability  of  th'is  com- 
pany under  the  policy;  "  and  there  is  no  provision  whatever  post- 
poning the  right  to  sue  until  after  an  award. 

The  special  defenses  set  up,  with  some  tautology  and  surplusage, 
in  the  answer,  reduce  themselves,  when  scrutinized,  to  a  single  one, 
the  plaintiff's  refusal  to  submit  to  an  award  of  arbitrators,  as  pro- 
vided in  the  policy.  This  appears  by  the  general  frame  of  the 
answer,  and  by  its  speaking  of  the  award  as  "an  arbitration  and 
the  ascertainment  of  the  said  loss  thereby  "  and  as  "  an  appraise- 
ment by  arbitrators,"  as  well  as  by  the  distinct  averment  that 
the  defendant  requested  and  the  plaintiff  declined  a  submission 
to  arbitration,  and  by  the  omission  of  any  specific  allegation  that 
the  plaintiff  neglected  to  procure  a  report  of  appraisers.  The  evi- 
dence introduced  at  the  trial  was  to  the  same  effect.  Proofs  of  loss, 
sent  by  the  plaintiff  to  the  defendant,  with  a  request  that  any  defects 
in  substance  or  form  might  be  pointed  out  so  that  he  might  perfect 
the  proofs  to  the  defendant's  satisfaction,  were  received  by  the 
defendant,  without  then  or  afterwards  objecting  to  their  form  or 
sufficiency.  The  subsequent  correspondence  between  the  parties 
was  evidentl}'  influenced  in  form  by  embracing  insurances  in  differ- 
ent companies  under  policies  with  various  provisions;  but,  as 
applied  to  the  policy  in  suit,  it  manifestly  related,  and  was  under- 
stood by  both  parties  to  relate,  not  to  a  mere  report  of  appraisers, 
but  to  an  award  of  arbitrators  which  should  bind  both  parties  as  to 
the  amount  of  the  loss.  The  instruction  to  the  jury,  therefore,  that 
on  the  issues  joined  on  the  special  defenses  in  the  answer,  and  upoa 


196  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

the  evidence  in  the  case,  the  plaintiff  could  not  recover,  was  in 
effect  a  ruling  that  the  plaintiff  could  not  maintain  his  action  because 
he  had  refused  to  submit  the  amount  of  his  loss  to  arbitration. 

A  provision,  in  a  contract  for  the  payment  of  money  upon  a  con- 
tingency, that  the  amount  to  be  paid  shall  be  submitted  to  arbi- 
trators, whose  award  shall  be  final  as  to  that  amount,  but  shall  not 
determine  the  general  question  of  liability,  is  undoubtedly  valid. 
If  the  contract  further  provides  that  no  action  upon  it  shall  be 
maintained  until  after  such  an  award,  then,  as  was  adjudged  in 
Hamilton  v.  Liverpool,  London  er"  Globe  Lns.  Co.,  above  cited,  and 
in  many  cases  therein  referred  to,  the  award  is  a  condition  precedent 
to  the  right  of  action.  But  when  no  such  condition  is  expressed  in 
the  contract,  or  necessarily  to  be  implied  from  its  terms,  it  is 
equally  well  settled  that  the  agreement  for  submitting  the  amount 
for  arbitration  is  collateral  and  independent;  and  that  a  breach  of 
this  agreement,  while  it  will  support  a  separate  action,  cannot  be 
pleaded  in  bar  to  an  action  on  the  principal  contract.  Roper  v. 
Lendon,  i  El.  &  El.  825;  Collins  v.  Locke,  4  App.  Cas.  674;  Daiuson 
v.  Fitzgerald,  i  Ex.  D.  257;  Reed  v.  Washington  Ins.  Co.,  138  Mass. 
572;  Seivard  v.  Rochester,  109  N.  Y.  164;  Birmingham  Ins.  Co.  v. 
Pulver,  126  Illinois,  329,  338;  Crossley  v.  Connecticut  Ins.  Co.,  27 
Fed.  Rep.  30.  The  rule  of  law  upon  the  subject  was  well  stated  in 
Dawson  v.  Fitzgerald,  by  Sir  George  Jessel,  Master  of  the  Rolls,  who 
said:  "There  are  two  cases  where  such  a  plea  as  the  present  is 
successful:  first,  where  the  action  can  only  be  brought  for  the  sum 
named  by  the  arbitrator;  secondly,  where  it  is  agreed  that  no  action 
shall  be  brought  till  there  has  been  an  arbitration,  or  that  arbitra- 
tion shall  be  a  condition  precedent  to  the  right  of  action.  In  all 
other  cases  where  there  is,  first,  a  covenant  to  pay,  and,  secondly, 
a  covenant  to  refer,  the  covenants  are  distinct  and  collateral,  and 
the  plaintiff  may  sue  on  the  first,  leaving  the  defendant  "  "  to  bring 
an  action  for  not  referring,"  or  (under  a  modern  English  statute) 
"  to  stay  the  action  till  there  has  been  an  arbitration."  i  Ex.  D. 
260.  Applying  this  test,  it  is  (juite  clear  that  the  separate  and 
independent  provision,  in  the  policy  now  before  us,  for  submitting 
to  arbitration  the  amount  of  the  loss,  is  a  distinct  and  collateral 
agreement,  and  was  wrongly  held  by  the  Circuit  Court  to  bar  this 
action. 

Judgment  reversed,  and  case  remanded,  with  directions  to  set 
aside  the  verdict,  and  to  take  such  further  proceedings  as  may  be 
consistent  with  this  opinion.' 

'  See  also  Reed  v.  Ins.  Co.,  13S  Mass.  572. 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  I97 

Marshall,   J.,  in  FOX  v.   MASONS'  FRATERNAL   ACCIDENT 

ASSOCIATION. 

96  Wis.  390.  394.  —  1897. 

Counsel  for  the  appellant  claim  that  the  learned  circuit  judge 
erred  in  not  nonsuiting  the  plaintiff,  because  the  contract  of  insur- 
ance prohibits  any  suit  other  than  to  enforce  payment  of  an  award 
of  arbitrators,  except  upon  the  refusal  of  the  association  to  arbi- 
trate. The  contract  was  clearly  so  worded  as  to  require  all  ques- 
tions between  the  association  and  the  assured  to  be,  at  its  option, 
settled  by  arbitration,  and  to  thereby  wholly  oust  the  court  of  juris- 
diction over  every  part  of  the  subject  of  liability,  and  the  amount 
thereof  as  well.  On  grounds  of  public  policy,  all  agreements 
between  parties  to  submit  the  whole  subject-matter  of  their  differ- 
ences to  arbitration,  wholly  stipulating  away  the  rights  of  each  or 
either  party  to  resort  to  the  tribunals  created  by  the  law  of  the  land 
for  a  determination  of  such  differences,  are  ^'oid,  and  have  been 
uniformly  so  held.  Hamilton  v.  Insurance  Co.,  136  U.  S.  242,  10  Sup. 
Ct.  945;  May,  Ins.,  §  492;  Leach  v.  Insurance  Co..,  58  N.  H.  245. 
Agreements  to  arbitrate  special  matters,  such  as,  under  an  insur- 
ance policy,  the  amount  of  the  loss,  something  that  does  not  go  to 
the  whole  groundwork  of  the  controversy,  have  been  as  universally 
sustained.  Viney  v.  Bignold,  20  Q.  B.  Div.  172;  Scott  v.  Avery,  5  H. 
L.  Cas.  811;  Delaware  &=  H.  Canal  Co.  v.  Pennsylvania  Coal  Co.,  50 
N.  Y.  250;  Reedv.  Insurance  Co.,  138  Mass.  572;  Wolff  m.  Insurance 
Co.,  50  N.  J.  Law,  453,  14  Atl.  561;  Hall  \.  Insurance  Co.,  57  Conn. 
105,  17  Atl.  356.'  It  is  not  here  contended,  as  we  understand  it, 
that  the  contract  in  question  belongs  to  the  first  class,  or  that  a 
general  provision  requiring  the  whole  subject  of  a  controversy  to 
be  submitted  to  arbitration  can  ordinarily  be  sustained,  but  it  is 
contended  that  such  contract  is  of  a  class  which  fo^ms  an  exception 
to  the  general  rule,  because,  as  said  by  counsel  for  appellant,  the 
association  is  purely  a  mutual  company;  that  its  contracts  are 
between  certificate  holders;  and  that  any  inexpensive  method  they 
may  see  fit  to  adopt  to  settle  their  differences  should  be  upheld.     No 

'  Coiiij  a  :  In  Nebraska  a  provision  in  a  policy  that  no  action  shall  be  sus- 
tained until  after  an  award  by  arbitration  fixing  the  amount  due  after  the  loss, 
is  void,  as  having  the  effect  of  ousting  the  courts  of  their  jurisdic'ion. — Nat. 
Masonic  Accident  Assoc,  v.  Burr,  44  Neb.  256;  Ins.  Co.  v.  Bachler,  lb.  549. 

In  those  states  where  a  valued  policy  is  required  by  statute,  the  provision  in 
the  policy  for  arbitration  does  not  apply  in  case  of  a  total  loss,  except  it  may  be 
to  ascertain  the  value  of  the  debris.  The  provisions  of  the  statute  override  the 
arbitration  clause  to  that  extent.  —  German  Ins.  Co.  v.  Eddy,  36  Neb.  461. 


198  THE    TERMS    OF     llIK    I.\>UKA.\Ch    COMRACT. 

authority  is  brought  to  our  attention  to  supjjort  sucli  contention, 
and  we  may  safely  say  that  none  exists,  and  that  there  is  no  reason- 
able theory  upon  which  it  can  rest.  There  is  no  exception  to  the 
rule  that  parties  cannot  wholly  deprive  themselves,  by  contract,  of 
the  right  to  resort  to  the  courts  of  the  country  to  settle  controver- 
sies between  them;  hence  it  necessarily  follows  that  the  ruling  of 
the  trial  court  that  the  arbitration  clause  in  the  certificate  under 
consideration  was  void  at  the  election  of  either  of  the  parties  must 
be  sustained.' 


6.  Pro-rating   and  Contribution. 

LUCAS  7'.  JEFFERSON  INSURANCE  CO.' 

6  CowEN,  635.  —  1827. 

Assumpsit  on  a  policy  of  insurance. 

The  defendants,  by  a  policy  dated  August  23d,  1824,  insured  the 
plaintiff  against  loss  by  fire  to  the  amount  of  $4,000,  on  certain  cot- 
ton and  woolen  machinery,  at  Mechanicville,  Saratoga  county. 
The  Chatham  and  ALtna  Fire  Insurance  Com[)anies,  also  insured  the 
plaintiff  on  the  same  property;  the  iormer  to  $5,500,  the  latter 
$6,000.  A  loss  had  been  sustained  by  fire.  The  evidence  on  the 
part  of  the  plaintiff,  made  the  amount  about  $20,000;  and  that  on 
the  part  of  the  defendants,  between  nine  and  ten  thousand  dollars. 
The  policy  under-written  by  the  defendants,  contained  the  following 
clause:  "  In  case  of  any  other  insurance  upon  the  property  hereby 
insured,  whether  prior  or  subsequent  to  the  date  of  this  policy,  the 

'  In  Robinson  v.  Templar  Lodoe,  117  Cal.  370,  the  constitution  of  the  defendant 
mutual  benefit  society  provided  that  with  respect  to  payments  of  assessments  or 
benefits  "  all  questions  whether  of  law  or  fact  *  *  *  appertain  to  the  sole 
jurisdiction  of  this  lodge  and  authorities  of  this  order,  and  their  decision  in  the 
premises  shall  be  binding  *  *  *  /'  The  court  said  (p.  375):  "  The  society 
has  many  of  the  features  of  an  organized  charity,  and  it  has  been  said  that  the 
claim  for  a  sick  benefit  is  not  a  property  right.  In  short,  the  rules  of  law  have 
not  been  applied  to  these  institutions  with  the  same  strictness  with  which  they 
have  been  applied  to  corporations  organized  for  profit.  In  an  ordinary  case  I 
should  be  loth  to  hold  that  one  can  effectually  waive  his  right  to  sue  in  a  court 
of  law  before  his  action  has  arisen,  or  that  he  can  in  advance  agree  to  an  arbi- 
tration, but  it  has  been  so  held  with  reference  to  these  mutual  benefit  societies, 
and,  with  reference  to  them,  I  think  the  regulation  reasonable.  Rood  v.  Rail- 
W1V  fti^.,  Assn.,  31  Fed.  Rep.  62;  Van  Poncke  v.  Nctlierland,  etc.,  Sor.,  63  Mich 
378;  Canfields.  Great  Cajnp,  etc.,  87  Mich.  626,  24  Am.  St.  Rep.  1S6.  But  even 
if  this  view  were  not  correct  there  ran  be  no  doubt  of  the  proposition  that  he 
must  first  exhaust  all  the  remedies  afforded  within  the  order  before  he  can  main- 
tain an  action   at  law.     No  such   fact  is  averred   in   the   complaint,  and,  as   I 


TERMS   OF   THE   FIRE   INSURANCE   CONTRACT.  I99 

insured  shall  not,  in  case  of  loss  or  damage,  be  entitled  to  demand 
or  recover  on  this  policy,  any  greater  portion  of  the  loss  or  damage 
sustained,  than  the  amount  insured  shall  bear  to  the  whole  amount 
insured  on  said  property."  The  Chatham  and  /Etna  companies  had 
each  paid  the  amount  of  their  insurance,  deducting  one-sixth, 
making  together  $9,583.34.  These  were  voluntary  payments  with- 
out suit,  by  arrangement  between  the  parties.  The  judge  charged 
the  jury,  that  in  ascertaining  the  amount  to  be  recovered,  they 
were  not  to  take  into  consideration  the  payments  made  to  the  plain- 
tiffs by  other  insurance  companies,  provided  those  companies  were 
aware  of  the  existence  of  all  the  policies  on  the  property  at  the  time 
they  paid  the  plaintiff  for  his  loss;  and  made  the  settlement  solely 
with  the  view  of  discharging  the  claim  of  the  plaintiff  against  them- 
selves. And  that  if  the  value  of  the  property  insured,  and  the 
amount  of  the  loss  by  fire,  were  equal  to  all  the  sums  insured  by  the 
different  underwriters,  the  verdict,  if  the  jury  should  think  the  plain- 
tiff entitled  to  recover,  ought  to  be  for  the  face  of  the  policy,  with 
interest.  But  if  the  value  of  the  property  insured,  and  the  loss  by 
fire,  were  less  than  the  aggregate  amount  of  the  sums  insured  by 
the  different  underwriters,  the  verdict  ought  to  be  only  for  such  a 
proportion  of  the  loss  or  damage  sustained  by  the  plaintiff,  as  the 
amount  insured  by  the  defendants  bore  to  the  whole  amount 
insured.  To  this  charge,  the  defendants  excepted;  the  judge  sealed 
a  bill  of  exceptions;  on  which  the  defendants  now  move  for  a  new 
trial. 

Curia^  per  Woodworth,  J.  —  No  objection  was  raised  on  the 
argument,  as  to  the  finding  of  the  jury;  nor  can  this  be  questioned 
on  a  bill  of  exceptions.     It  was  contended   that   the  charge  of  the 

understand  the  record,  although  previous  application  had  been  made  for  bene- 
fits which  had  accrued  before  the  time  during  which  the  benefits  here  sued  for 
accrued,  there  is  no  evidence  which  tended  to  show  that  any  application  at  all 
had  been  made  to  the  lodge  for  the  amounts  here  sued  for.  The  authorities  all 
seem  to  hold  that  this  resource  must  be  first  exhausted.  They  are  too  numer- 
ous to  admit  of  full  citation.  In  this  state  the  following  cases  so  hold:  Levy 
V.  Ma^tiolia  Lodge,  no  Cal.  297;  Robinson  v.  Irish,  etc.,  Soc,  67  Cal.  135.  I  can 
discover  no  support  whatever  for  a  contrary  opinion  in  Robinson  v.  Templar 
Lodge,  97  Cal.  62." 

In  Raymond  V.  Farmers'  Mut.  Fire  Ins.  Co.,  \l\  Mich.  386,  a  by-law  provided 
that  "  any  and  all  differences  "  were  to  be  settled  by  arbitrators,  and  the  court 
held  that  such  a  provision  was  not  against  public  policy  as  ousting  the  jurisdic- 
tion of  the  courts,  the  court  saying:  "  By  the  terms  of  the  contract,  this  claim 
has  not  become  due  and  could  not  unless  a  sum  should  be  awarded  by  the  arbi- 
trators." The  same  court  had  previously  applied  this  doctrine  to  mutual  benefit 
societies  providing  sick  and  death  benefits. — Fillmore  \ .  Knights,  etc.,  103 
Mich.  437. 


200  THE    TERMS   OF   THE    INSURANCE   CONTRACT. 

judge  was  erroneous,  on  the  ground  that  the  defendants  were 
entitled  to  the  benefit  of  the  payments  made  by  the  other  compa- 
nies; and  that,  inasmuch  as  the  whole  of  the  loss  sustained  had  been 
already  paid,  the  defendants  were  entitled  to  a  verdict.  It  is  well 
settled,  that  upon  a  double  insurance,  though  the  insured  is  not 
entitled  to  two  satisfactions,  yet  in  the  first  action,  he  may  recover 
the  whole  sum  insured,  leaving  the  defendant  to  recover  a  ratable 
satisfaction  from  the  other  insurers  (i  Bl.  Rep.  416.)  In  such 
cases,  the  two  policies  are  considered  as  making  but  one  insurance. 
They  are  good  to  the  extent  of  the  value  of  the  effects  put  in  risk. 
The  insured  may  sue  the  underwriters  on  both  policies;  but  he  can 
only  recover  the  real  amount  of  his  loss,  to  which  all  the  under- 
writers shall  contribute  in  proportion  to  their  several  subscriptions. 
Marsh,  on  In.  B.  i,  ch.  4,  §  4,  p.  116,  or  Condy's  Ed.,  p.  146. 

In  the  case  before  us,  it  is  said,  that  the  clause  in  the  policv,  as 
to  prior  and  subsequent  insurances,  differs  essentially  from  tb.e  like 
clause  in  marine  policies.  I  have  looked  at  some  of  the  printed 
forms  of  policies  against  fire,  in  the  books,  but  have  not  discovered 
any  such  clause.  There  is  no  direct  evidence,  to  show  that  the 
policies  made  by  the  Chatham  and  .-Etna  offices  were  similar  to  this. 
Whether  they  are  or  not,  the  parties  in  this  action  must  be  governed 
by  the  contract  they  have  made.  That  is  express.  Suppose  the 
plaintiff  had  not  received  anything  from  the  other  offices;  could  he 
recover  the  whole  amount  of  the  defendants'  subscription,  provided 
his  loss  was  equal  to  the  amount?  In  a  policy  not  containing  the 
clause  referred  to,  the  plaintiff  would  be  entitled  to  recover  the  sum 
insured,  leaving  the  defendants  to  seek  contribution  from  other 
insurers.  Here  there  is  a  stipulation  against  that  course,  in  very 
explicit  language:  "  The  insured  shall  not,  in  case  of  loss  or  dam- 
age, be  entitled  to  demand  or  recover  on  this  policy,  any  greater  por- 
tion of  the  loss  or  damage  sustained,  than  the  amount  insured  bears 
to  the  whole  amount  insured  on  the  property. "  The  defendants  did 
not  intend  to  be  liable  for  the  whole  of  their  subscription  in  the 
first  instance,  and  then  seek  indemnity  by  way  of  contribution.  If, 
notwithstanding  this  clause,  the  defendants  should  voluntarily  pay 
the  whole  amount  of  their  subscription,  towards  the  plaintiff's  loss, 
I  do  not  perceive  on  what  ground  they  could  claim  contribution. 
The  answer  to  such  a  claim  would  be,  that  they  paid  in  their  own 
wrong;  and  volenti  non  Jit  injuria.  If  there  is  redress,  it  must  be 
against  the  party  who  received  more  than  he  was  entitled  to  demand. 
The  principle  of  contribution  can  only  be  enforced  where  the  party 
paying  was  under  a  legal  obligation  to  pay.  If  the  policies  of  the 
Chatham  and  ^"Etna  companies  are   similar   to  this,  the  defendants 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  201 

have  no  concern  with  the  amount  paid  by  them.  In  that  case,  they 
acted  for  themselves;  and  if  they  have  paid  more  than  the  plaintiff 
could  by  law  recover,  it  was  done  voluntarily.  In  the  present  case, 
the  amount  of  the  plaintiff's  loss  is  controverted.  He  claims  much 
more  than  the  defendants  are  willing  to  admit.  The  weight  of  evi- 
dence on  this  point  may  be  contended  for  by  the  defendants;  but 
sti  1,  it  is  a  disputable  fact.  The  Chatham  and  ^'Etna  offices  may 
have  chosen  to  pay  on  the  exhibition  of  the  plaintiff's  proof,  in 
p.eference  to  a  protracted  litigation.  They  may  have  erroneously 
considered  the  damages  much  greater  than  they  really  were.  They 
acted  voluntarily,  and  for  themselves.  This  was  submitted  to  the 
jury,  and  they  have  passed  upon  it.  The  act  of  settling  for  them- 
selves, raises  a  presumption  that  the  different  policies  were  alike; 
and  that  no  claim  for  contribution  was  contemplated  as  against 
each  other. 

On  the  supposition  that  the  policies  of  the  Chatham  and  .^tna 
companies  did  not  contain  the  clause  in  question,  the  plaintiff  might 
recover  the  amount  of  their  subscriptions,  if  necessary  to  satisfy  his 
loss;  and  in  such  case,  I  apprehend,  it  would  be  competent  for  the 
defendants  to  show  the  plaintiff  had  received  satisfaction.  As 
indemnity  can  only  be  claimed,  there  is  no  right  of  action  after  it  is 
obtained.  If  the  policies  of  the  Chatham  and  Aitna.  offices  were  such 
as  to  entitle  the  plaintiff  to  recover  of  them  all  of  their  subscription, 
if  requisite  to  pay  his  loss,  then  their  right  to  contribution  against 
the  defendants  would  be  undoubted.  The  clause  in  the  defendants' 
policy  would  not  affect  that  question;  but  would  apply,  when  they 
should  be  prosecuted  by  the  plaintiff,  so  as  to  protect  them  against 
his  claim  beyond  a  ratable  proportion  of  the  loss.  If  the  loss  has 
been  already  recovered,  and  paid,  the  claim  for  a  ratable  proportion  is 
necessarily  extinguished.  The  Chatham  and  ^tna  offices  incurred 
no  risk  in  making  payment,  provided  the  clause  is  not  in  their  poli- 
cies; because  it  is  conceded  by  the  defendants  that  the  loss  was  at 
least  equal  to  those  payments.  On  this  principle,  the  defendants 
are  liable  to  contribute  a  portion  to  those  companies.  If  the 
amount  received  was  to  be  taken  into  consideration  on  the  trial,  the 
duty  of  the  jury  would  have  been  to  ascertain  the  whole  amount  of 
loss;  and  if  it  exceeded  the  sums  paid,  then,  after  deducting  the 
payment,  to  find  a  verdict  against  the  defendants  for  the  balance, 
provided  it  did  not  exceed  the  proportion  of  the  whole  loss,  which, 
according  to  the  contract,  the  defendants  ought  to  bear;  and  if  the 
amount  of  the  loss  remaining  unsatisfied  was  less  than  such  ratable 
share  of  the  whole  loss,  then  the  verdict  should  have  been  for  such 
balance.     In  the  action  for  contribution,  an  adjustment  would  be 


202  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

made  between  the  parties  on  these  principles.  In  the  view  thus 
taken,  I  think  that  part  of  the  judge's  charge  incorrect,  which 
directed  the  jury  not  to  take  into  consideration  the  payments  made 
to  the  plaintiff,  by  the  other  insurance  companies,  provided  those 
companies  were  aware  of  the  existence  of  all  the  policies  on  the 
property  at  the  time;  and  made  the  settlement  solely  with  a  view  of 
discharging  the  plaintiff's  claim  against  themselves.  If  the  Chat- 
ham and  .-Etna  companies  were  liable  to  the  amount  of  their  sub- 
scri|nions,  which  I  apprehend  they  were,  unless  protected  by  a 
clause,  like  that  in  the  defendant's  policy,  their  knowledge  of  other 
policies  was  immaterial.  Whether  they  had  knowledge  or  not,  the 
plaintiff  was  entitled  to  recover  against  them;  and  if  so,  they  had  a 
remedy  over  against  the  other  insurers.  Neither  can  the  fact  that 
they  settled  to  discharge  the  claim  solely  against  themselves,  defeat 
such  remedy  over  if  it  appears  they  have  not  paid  more  than  the 
loss  sustained.  Suppose  those  companies  had  settled  under  a  belief 
that  their  proportion  of  the  loss  would  be  equal  to  the  amount  paid; 
and  therefore  did  not,  at  the  time,  contemplate  a  recovery  against 
others  for  a  portion  of  it.  This  would  not  invalidate  their  right  to 
claim  contribution,  when  it  is  shown  that  they  had  paid  more  than 
their  relative  proportion.  In  this  point  of  view,  the  charge  was 
calculated  to  produce  a  result  unfavorable  to  the  defendants.  The 
verdict  was  for  the  plaintiff;  for  how  much  does  not  appear;  prob- 
ably for  the  whole  sum  insured.  A  new  trial  should  be  granted  if 
the  Chatham  and  /Etna  companies  were  legally  bound  to  pay  what 
the  plaintiff  received.  But  if  those  policies  were  like  the  one  in 
question,  the  defendants  can  derive  no  benefit  from  the  payments 
made.  They  should  be  put  out  of  vi-e-w  on  this  trial;  and  if  so,  that 
part  of  the  charge  on  which  I  have  commented  was  incorrect  as 
respects  the  plaintiff.  The  defendants  have  no  cause  to  complain. 
It  was  allowing  them  the  benefit  of  the  payments,  if  the  jury  were 
satisfied  of  certain  facts  submitted  to  them;  whereas,  they  should 
have  been  instructed  not  to  regard  the  payments,  if  the  policies 
subscribed  by  those  companies  bound  them  only  to  pay,  in  the  first 
instance,  a  ratable  proportion  of  the  loss. 

The  question  then  is,  what  was  the  form  of  the  Chatham  and 
^Eltna  policies?  Neither  party  has  adduced  any  express  testimony 
to  this  fact.  On  whom  devolved  the  necessity  of  showing  what 
those  policies  contained?  Certainly  not  the  plaintiff.  His  case  was 
made  out  without  this.  He  claims  of  the  defendants  the  proportion 
they  are  bound  to  pay  under  their  policy  for  the  whole  loss.  They 
contend  it  has  been  paid  by  other  companies.  But  to  make  that 
defense  available,  it  must  be  shown  either  that  the   companies  paid 


TERMS   OF   THE    FIRE   INSURANCE   CONTRACT-  203 

in  fact  a  s.um  of  money  which  was  received  in  full  satisfaction  of  all 
the  insurances;  or  that  the  amount  paid  by  them  was  in  pursuance 
of  a  policy  which  authorized  such  payment.  The  first  is  not  pre- 
tended As  to  the  second,  the  court  is  left  to  conjecture.  It  is  a 
fact  on  which  the  defense  rests.  There  is  no  safificient  ground  for 
presumption  that  those  policies  did  not  contain  the  clause  in  ques- 
tion. The  defendants'  policy  contains  it.  Some  of  the  forms  in 
the  books  do  not.  We  cannot  assume  the  fact  that  the  policies 
differed  from  the  one  in  this  case.  I  think  it  may  rather  be  pre- 
sumed they  are  alike.  The  settlement  made  between  the  plaintiff 
and  the  companies  strengthens  the  presumption.  They  each 
deducted  one-six^h.  They  certainly  had  no  right  to  make  that 
deduction  if  the  loss  exceeded  the  sums  insured  by  them.  The 
plaintiff  claimed  considerably  more.  It  is  not  probable  the  plaintiff 
would  have  consented  to  a  deduction  of  one-sixth,  if  the  policies 
were  so  drawn  as  to  allow  him  to  recover  the  whole  sum  insured. 
Be  this,  however,  as  it  may,  I  think  the  defendants  ought  t3  have 
shown  the  other  policies  were  different,  in  order  to  avail  themseh'es 
of  the  payments.  The  remainder  of  the  charge  is  correct.  If  the 
loss  was  equal  to  all  the  sums  insured,  the  plaintiff  was  entitled  to 
the  face  of  the  policy.  If  less,  to  a  proportion  only.  Whether  the 
jury  have  found  too  much,  or  too  little,  is  not  before  us.  The 
motion  for  a  new  trial  must  be  denied. 

New  trial  denied.' 


7.  Option  to  Rebuild. 

RuGER,  C.  J.,  IN  WYNKOOP  r.  NIACxARA  INSURANCE  CO. 

91  N.  Y.  478.  —  1S83. 

The  evidence  showed  that  the  house  of  the  insured  was  struck 
by  lightning  on  the  3d  day  of  June,  1876,  and  tended  to  show  that 
it  was  seriously  injured.  The  defendant  soon  thereafter,  under  the 
option  clause  of  the  policy,  elected  to  repair  the  injury  and  restore 
the  house  to  its  former  condition.     A  carpenter  was  employed   by 

'  When  the  property  was  insured  independently  by  the  mortgagee,  the  oivner 
of  the  ground  rents,  and  the  lessee,  and  a  loss  having  occurred,  one  of  the 
insurers  of  the  lessee  replaced  the  property,  it  was  held  that  the  insurer  replac- 
ing the  properly,  though  entitled  to  contribution  from  its  co-insurers  of  the 
same  interest  could  noi  resort  to  the  insurers  of  the  other  interests;  that  to 
invoke  conlribution  the  insurance  must  be  for  the  same  person,  upon  the  same 
subject-matter,  and  against  the  same  risks.  —  Conn.  Fire  Ins.  Co.  v.  Ins.  Co  ,  15 
Ins.  Law  Jour.  615  (Va.  Sup.  Ct..  Apr.,  1886;  not  officially  reported).  See  also 
North  Brit,  and  Mer.  Ins.  Co.  v.  Ins.  Co.,  5  Ch.  D.  569. 


204  THK    TERMS   OF   THE    INSURANCE   CONTRACT. 

it  to  make  the  re])airs,  and  after  about  one  day's  labor  the  defend- 
ant informed  the  insured  that  it  had  completed  the  restoration; 
some  time  afterwards  a  mason  was  also  emplo3'ed  to  do  work  on  the 
house  and  the  insured  was  again  informed  that  the  repairs  were 
finished.  The  insured  always  claimed  that  the  repairs  were  insuffi- 
cient, but  declined  to  point  out  wherein  the  insufficiency  consisted. 
After  such  attempted  repairs  were  declared  finished,  and  about  the 
26th  day  of  August,  1876,  the  plaintiff's  intestate  duly  made  out 
and  served  proof  of  loss  upon  the  defendant.     *     *     * 

The  rights  of  the  parties  rested  altogether  in  contract,  and  the 
defendant  assumed  the  responsibility  of  performing  it  according  to 
its  terms,  subject  to  the  right  of  the  insured  to  damages  for  any 
breach  of  performance.  The  defendant  in  case  of  liability  arising 
against  it  upon  its  contract  had  an  option  as  to  the  manner  in  which 
it  would  discharge  such  liability.  One  mode  looked  to  the  com- 
pensation of  the  insured  by  the  payment  of  damages  for  his  loss, 
and  the  other  to  the  restoration  of  the  subject  of  insurance  to  its 
former  condition.  It  could  not  have  been  contemplated  by  the 
parties  that  both  methods  of  performance  were  to  be  pursued.  The 
selection  by  the  defendant  of  one  of  these  alternatives  necessarily 
constituted  an  abandonment  of  the  other.  The  election  of  the  priv- 
ilege of  restoration  involved  the  rejection  not  only  of  the  right  to 
discharge  its  liability  by  the  payment  of  damages  to  the  insured, 
but  also  of  those  provisions  of  the  contract  having  reference  to  that 
method  of  performance.  From  the  time  of  such  election  the  con- 
tract between  the  parties  became  an  undertaking  on  the  part  of  the 
defendant  to  build  or  repair  the  subject  insured  and  to  restore  it  to 
its  former  condition,  and  the  measure  of  damages  for  a  breach  of 
the  substituted  contract  did  not  necessarily  depend  upon  the 
amount  of  damages  inflicted  upon  the  house  by  the  peril  insured 
against.  Those  views  have  frequently  been  expressed  by  this  court. 
In  Morrell  v.  Irving  Fire  Ins.  Co.,  33  N.  Y.  429,  the  company  had 
availed  itself  of  its  option  to  restore  the  premises  injured.  Denio, 
J.,  said:  "  The  contract  then  became  one  for  rebuilding,  and  the 
obligation  which  looked  to  the  payment  of  money  became  obsolete 
and  inapplicable,  and  the  case  then  became  the  same  which  it  would 
have  been  if  the  contract  had  obliged  the  defendant  simply  to 
rebuild  in  case  of  loss."  To  similar  effect  are  the  cases  of  Beals  v. 
The  Home  Ins.  Co.,  36  N.  Y.  522;  Hcilniann  v.  Westchester  F.  Ins. 
Co.,  75  Id.  9.     *     *     *' 

'  There  is  no  option  to  the  insurer  to  indemnify  by  rebuilding  or  repairing 
unless  the  policy  so  provides.  —  IVattaci-  v.  Co.,  4  La.  289. 


TERMS   OF   THE   FIRE   INSURANCE   CONTRACT.  20$ 

8.  Divisibility  of  Loss. 
McGOWAN  V.  PEOPLE'S    MUTUAL    FIRE  INSURANCE  C(J>. 

54  Vt.  211.  —  i88i. 

Taft,  J.  —  The  policy  in  question  contained  the  following  pro- 
vision: "  Whenever  any  one  hereinafter  insured  shall  alienate  con- 
ditionally, by  mortgage,  his  policy  shall  be  void,  unless  he  shall 
make  a  representation  thereof  in  writing  to  the  secretary,  stating 
the  amount,  and  to  whom  mortgaged,  and  the  cash  value  of  lands 
and  buildings  separately,  and  when  approved  by  a  director,  the 
secretary  shall  enter  a  minute  thereof  on  the  record  of  said  policy 
and  forward  to  the  insured  a  certificate  thereof." 

The  assured  mortgaged  the  real  estate  covered  by  the  policy  on 
the  24th  day  of  July,  1878;  the  property  was  destroyed  by  fire  on 
the  i8th  day  of  the  following  month;  notice  of  the  mortgage  was 
given  to  the  secretary  on  the  12th  day  of  September  afterwards  — 
fifty  days  after  its  execution,  and  twenty-five  days  after  the  fire. 
The  orator  contends  that  he  was  entitled  to  a  reasonable  time  to 
represent  the  mortgage  to  the  company.  He  delayed  for  twenty- 
five  days  and  until  the  destruction  of  the  property.  He  could  have 
communicated  with  the  secretary  daily.  There  is  much  good  sense 
in  saying  that  upon  the  execution  of  the  mortgage  the  policy  was 
void,  as  though  the  contract  had  read  "  tintil  he  shall  make  a  repre- 
sentation," etc.,  instead  of  "  unless  he  shall  make,"  etc.  But  con- 
struing the  clause  most  favorably  to  the  assured,  and  giving  it  the 
construction  contended  for,  we  think  the  delay  of  twenty-five  days, 
when  he  could  have  communicated  with  the  company  daily,  an 
unreasonable  one.  *  *  *  'phe  policy  therefore,  by  reason  of 
the  execution  of  the  mortgage  by  the  orator,  became  void;  but  the 
orator  claims  that  it  was  valid  as  to  the  personal  property,  situated 
in  the  dwelling-house,  which  was  the  first  item  insured  by  the  policy. 

This  is  a  question  of  great  practical  importance,  as  a  large  pro- 
portion of  insurance  contracts  embrace  more  than  one  item  of  prop- 
erty insured.  The  decisions  are  apparently  conflicting;  but  we 
think  are  easily  reconciled  by  referring  to  the  plain  principles 
which  should  govern  them.  The  general  rule,  "  void  in  part  void 
in  toto,''  should  apply  to  all  cases  where  the  contract  is  affected  by 
some  all-pervading  vice,  such  as  fraud,  or  some  unlawful  act,  con- 
demned by  public  policy  or  the  common  law;  cases  where  the  con- 
tract is  entire  and  not  divisible;  and  all  those  cases  where  the 
matter  that  renders  the  policy  void  in  part,  and  the  result  of  its 
being  so  rendered  void,  affects  the  risk  of  the  insurer  upon  the 
other  items  in  the  contract.     Keeping  these  rules  in  mind,  the  lead- 


200  THK   TERMS   OF   THE    INSURAN'CE    CONTRACT. 

ing  cases  upon  this  subject  can  all  be  reconciled.  A  recovery  should 
be  had  in  all  these  cases  where  the  contract  is  divibible;  the  different 
properties  insured  for  separate  sums;  and  the  risk  upon  the  prop- 
erty, which  is  claimed  to  be  valid,  unaffected  by  the  cause  that 
renders  the  policy  void  in  part.  Such  are  the  cases  of  Howard-^. 
Corniik  ct  a/.,  24  111.  455;  Hartford  Fire  Ins.  Co.  v.  U'a/s/i,  54  III. 
164;  Clark  V.  New  Eng.  M.  F.  Ins.  Co.,  6  Cush.  324;  Ua/e  v.  Gore 
District  M.  F.  Ins.  Co.,  14  Up.  Can.  C.  P.  548;  Pha-nix  Ins.  Co.  v. 
Laiurcnce  ft  a/.,  .\  Met.  (Ky.)  9;  lochner  v.  Howe  M.  Ins.  Co.,  17 
M).  247;  Koontz  V.  Hannibal  S.  <s'  I.  Co.,  42  Mo.  126;  Cucullu  v. 
Orleans  Ins.  Co.,  18  Mar.  (La.)  11.  In  French  v.  Chenango  M.  Fire 
Ins.  Co.,  7  Hill,  122,  the  policy  covered  a  building  and  its  contents, 
and  was  held  void  as  to  the  former  by  omitting  to  state  the  existence 
of  a  plough  shop  within  ten  rods  of  the  property  insured;  but  valid 
as  to  the  contents.  Upon  what  principle  a  policy  could  be  held 
void  in  part  and  valid  in  part,  for  a  misdescription  of  adjacent 
buildings,  affecting  the  various  items  of  the  risk  in  equal  degree, 
we  are  unable  to  determine.  The  case  was  substantially  overruled 
by  Wilson  v.  Herkimer  Co.  M.  Ins.  Co.,  6  N.  Y.  53. 

The  cases  following  have  held  the  contracts  entire,  indivisible, 
and  no  recovery  could  be  had  upon  them.  Hinman  v.  Hartford 
Fire  Ins.  Co.,  36  Wis.  159;  Associated  F.  Ins.  Co.  v.  Assam,  5  Md. 
165,  Bowman  v.  Franklin  Ins.  Co.,  40  Md.  620;  Fire  Association  v. 
Williamson,  26  Penn.  St.  196;  Gottsman  v.  The  Penn.  Ins.  Co.,  56 
Penn.  St.  210;  Bleakley  v.  Niagara  D.  M.  Ins.  Co.,  16  Grant's  Ch. 
Rep.  U.  C.  198. 

In  t!ie  case  at  bar  the  whole  property  was  insured  for  eight  hun- 
dred and  seventy-two  dollars,  divided  into  specific  items,  but  one 
premium  was  paid,  and  one  premium  note  given.  We  think  the 
authorities  justify  us  in  holding  that  the  contract  was  an  entire  one; 
separate  and  distinct  only  so  far  as  to  limit  the  extent  of  the  risk 
assumed  by  the  company  on  each  kind  of  property.  The  cost  of 
the  insurance  was  to  be  assessed  upon  the  premium  note,  and  the 
company  had  a  lien  upon  the  buildings  insured,  as  security  for  the 
payment  of  any  assessment  which  might  be  made  upon  the  note. 
The  encumbrance  upon  the  buildings  affected  the  security  the  com- 
pany held  for  the  payment  of  assessments  which  might  be  laid  upon 
the  note;  thus  the  risk  upon  the  personal  property  was  affected  by 
the  cause  which  rendered  the  policy  void  as  to  the  real  estate.  We 
think  for  these  two  reasons  that  the  whole  policy  was  void.  Fries- 
muth  V.  Agawam  M.  F.  Ins.  Co.,  10  Cush.  587;  Brown  v.  People's 
M.  Ins.  Co.,  II  lb.  280;  Lovejoy  v.  Augusta  M.  F.  Ins.  Co.,  45  Me. 
472;   Gould  V.  York  Co.  M.  F.  Ins.  Co.,  47  Me.  403;  Day  v.  Charter 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  20/ 

Oak  F.  6^  J/.  Ins.  Co.,  ^\  Me.  91  ;  Barnes  v.  Union  M.  F.  Ins.  Co.., 
lb.   no. 

The  views  expressed  render  it  unnecessary  to  pass  upon  the  ques- 
tions in  the  case  as  to  proofs  of  loss,  fraud,  and  false  swearing.  The 
pro  forma  decree  of  the  Court  of  Chancery  is  reversed,  and  cause 
remanded  with  the  mandate  that  the  bill  be  dismissed. 

Veazey,  J.,  did  not  sit,  having  heard  the  case  on  demurrer." 


9.  Valued  Policies. 

INSURANCE  CO.  v.  BUTLER. 

3S  Ohio  St.  128.  —  1882. 

A  FIRE  insurance  policy  was  issued  to  plaintiff  for  $800  on  her 
dwelling  house  and  $400  on  her  barn,  by  which  the  company  agreed 
"  to  make  good  unto  the  said  assured,  *  *  *  all  such  loss  or 
damage,  not  exceeding  in  amount  the  several  sums  insured,"  etc. 
The  application,  made  a  part  of  the  policy,  contained  are  presenta- 
tion that  "  the  above  description  and  diagram  contains  a  full  and 
accurate  description  of  the  buildings  and  property  insured,  and  the 
insurance  on  the  buildings  does  not  exceed  two-thirds  their  actual 
cash  value."     The  dwelling  was  totally  destroyed  by  fire. 

McIlvaine,  J.  — Whether  the  policy  of  insurance  in  this  suit  is 
valued  or  open,  is  the  sole  question  in  this  case. 

A  policy  of  insurance  is  essentially  a  contract  for  indemnity  in 
case  of  loss.  Wager  policies  are  contrary  to  public  policy.  The 
insured  must  have  an  interest  in  the  subject  of  the  insurance  —  an 
interest  in  its  preservation.  In  case  of  loss,  his  contract  rightfully 
entitles  him  to  compensation  —  nothing  more.  The  reason  upon 
which  this  principle  rests,  is  the  prevention  of  fraud  and  crime,  by 
removing  all  inducement  and  temptation  to  commit  them,  which 
would  naturally  arise  from  the  great  disparity  between  the  consider- 
ation paid  and  the  indemnity  received  by  the  insured.  This  dis- 
parity, however,  does  not  amount  to  inadequacy  or  even  a  suspicion 
of  fraud ;  because  of  the  supposed  remoteness  of  the  contingency  of 
loss;  nevertheless  its  existence  requires  the  utmost  good  faith  on 
the  part  of  the  insured.     While  these  considerations  do  not,  in  the 

'See  also  Loomis  v.  Ins.  Co.,  77  Wis.   87;   McQtieeny  v.  Ins.    Co.,  52  Ark.   257. 

"  Whatever  the  rule  may  be  elsewhere,  it  is  settled  in  this  state  that  where 
insuratice  is  made  on  different  kinds  of  property,  each  separately  valued,  the 
contract  is  severable,  even  if  but  one  premium  is  paid  and  the  amount  insured 
is  the  sum  total  of  the  valuations."  — Pratt  v.  Ins.  Co.,  130  N.  Y.  206,  221. 


208  THE   TERMS   OF   THE   INSURANCE   CONTRACT. 

least,  exempt  the  insurer  from  liability  on  his  contract,  they  do 
show  that  in  the  absence  of  a  contract  to  the  contrary,  the  amount 
of  recovery  on  a  policy  of  insurance  should  be  limited  to  the  actual 
loss  sustained  by  the  assured  on  account  of  the  risk  against  which 
the  policy  was  taken.  In  other  words,  a  policy  of  insurance  must 
be  regarded  as  an  open  one,  unless  it  appears  to  have  been  the 
intention  of  the  parties  to  the  policy,  upon  a  fair  and  reasonable 
construction  of  its  terms,  to  value  the  loss,  and  thereby  fix,  by  con- 
tract, the  amount  of  recovery. 

Mr.  Wood,  in  his  treatise  on  fire  insurance,  §  41,  says:  "  Valued 
policies  are  those  in  which  both  the  property  insured  and  the  loss 
are  valued,  and  which  bind  the  insurer  to  pay  the  whole  sum  insured, 
in  case  of  total  loss.  They  may  be  said  to  be  policies  in  which  the 
insurer  himself,  at  the  time  of  making  the  policy,  assesses  the  dam 
ages  in  case  of  total  loss,  unless  fraud,  inducing  an  over- valuation  on 
the  part  of  assured,  is  established."  And  further  along  in  the  same 
section  he  says:  "  If  there  is  anything  in  the  policy  that  clearly 
indicates  an  intention  on  the  part  of  the  insurer  to  value  the  risk 
and  the  loss,  in  whatever  words  expressed,  the  policy  is  valued, 
otherwise  it  is  open."  Again,  "  No  particular  form  of  expression 
is  necessary;  the  intention  of  the  parties,  gathered  from  the  whole 
instrument,  must  determine  the  matter."  Fuller  x.  Boston,  etc.,  Ins. 
Co.,  18  Pick.  523. 

It  has  been  decided  that  a  policy  of  a  company  whose  charter 
limited  its  liability  to  a  certain  proportion  of  the  actual  value  of  the 
property  insured,  which  refers  to  the  value  of  the  property  as  stated 
m  the  application  of  the  insured,  is  a  valued  policy.  10  Gushing, 
551.  Other  cases  go  so  far  as  to  hold,  generally,  that  a  policy  which 
refers  to  the  valuation  of  the  property  as  it  appears  in  the  applica- 
tion which  is  made  a  part  of  the  policy,  is  a  valued  one.  i  Allen, 
63;  100  Mass.  475. 

Without  expressing  an  opinion  as  to  the  soundness  of  such  con- 
struction when  nothing  further  appears  in  the  policy,  we  are  satisfied 
that  the  policy  before  us,  which  contains  the  further  stipulation, 
that  "  said  Farmers'  Insurance  Company  hereby  agrees  to  make 
good  unto  the  said  assured,  his  heirs,  executors,  administrators,  or 
assigns,  all  such  loss  or  damage  not  exceeding  in  amount  the  several 
sums  insured,  as  shall  happen  by  fire  or  lightning  to  any  of  the 
aforesaid  property,  from  the  28th  day  of  March,  1873,  at  12  o'clock 
at  noon,  to  the  28th  day  of  March,  1878,  at  12  o'clock  at  noon, 
and  to  be  paid  ninety  days  after  due  notice  and  proofs  of  the 
same  bhall  have  been  made  by  the  assured  and  received  at  this 
office,  with  the  terms  and  provisions  of  this  policy,"  shows  that  it 


TERMS   OF   THE   FIRE   INSURANCE   CONTRACT.  209 

was  not  intended  by  the  insurer  to  make  the  sum  assured  the 
measure  or  value  of  the  damages,  although  the  loss  might  be  total. 
Proofs  of  loss  or  damage  here  required  as  a  condition  precedent  to 
the  payment,  refer  to  cases  of  total  as  well  as  partial  losses.  The 
amount  of  liability  on  the  policy  was  thus  left  open  to  inquiry, 
limited,  however,  by  the  amount  of  insurance  named  in  the  policy. 
The  Court  of  Common  Pleas,  therefore,  erred  in  rejecting  testi- 
mony offered  by  the  defendant  below  as  to  the  amount  of  actual 
loss.  And  the  District  Court  erred  in  affirming  the  judgment  of 
the  Common  Pleas. 

Judgments  reversed  and  cause  remanded.' 


OSHKOSH  GAS  LIGHT  CO.  v.  GERMANIA  FIRE 
INSURANCE  CO. 

71  Wis.  454.  —  i838. 

February,  8,  1885,  the  defendant  issued  to  the  plaintiffs  its  pol- 
icy of  insurance,  whereby  it  insured  the  plaintiffs  against  loss  by 
fire  to  the  amount  of  $750  in  several  sums,  upon  six  separate  pieces 
of  property,  some  of  which  were  real  estate,  and  some  personal 
property,  including  "  $180  on  the  frame  storehouse  building  and 
shed  adjoining,  including  scales."  By  the  terms  of  the  policy, 
"$15,000  concurrent  insurance"  was  "permitted,"  in  the  aggre- 
gate, on  the  whole  property  covered  by  the  policy.  "  There  was 
other  insurance  upon  this  property,  amounting,  in  the  aggregate,  to 

'  See  also  Cushman  v.  Ins.  Co.,  34  Me.  487,. 

In  Har7-is  v.  Eagle  Fire  Co.,  5  Johns.  368,  the  policy  insured  "  380  kegs  of 
manufactured  tobacco,  worth  g,6oo  dollars."  Of  Ihis  tobacco,  157  kegs  were 
totally  destroyed  by  fire.  The  court  said:  "  The  case  states,  that  among  the 
articles  insured  there  were  380  kegs  manufactured  tobacco,  worth  9,600  dollars; 
this  was  the  rate  at  which  the  tobacco  was  estimated,  in  making  up  the  20,000 
dollars,  the  an:ount  of  the  insurance.  The  premium  was  paid  according  to  this 
valuation;  and  the  157  kegs  which  were  lost,  are  expressly  stated  to  be  of  the 
same  kind  and  quality  as  the  whole  380  kegs.  We  have,  therefore,  an  infallible 
rule  by  which  to  estimate  the  several  and  distinct  value  of  each  keg  of  tobacco. 
But  it  was  said  on  the  argument,  that  admitting  this  to  be  a  valued  policy,  it 
would  make  no  difference,  for  it  was  only  in  case  of  a  total  loss,  that  there  was 
any  distinction  between  an  open  and  a  valued  policy;  that  in  case  of  a  partial 
loss,  the  like  inquiry  into  the  true  amount  of  such  loss  is  to  be  made,  whether 
the  policy  be  of  the  one  sort  or  the  other.  This  is  undoubtedly  true,  when 
ascertaining  the  extent  of  damage  which  the  particular  subject  has  sustained, 
and  when  there  was  not  an  absolute  destruction  of  the  subject.  But  where 
there  is  an  actual  loss  of  any  article,  distinctly  valued  in  the  policy,  that  valu- 
ation, I  apprehend,  must  govern  all  cases." 

LAW    OF    INSURANXE I4 


2IO  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

$11,250."  December  18,  1885.  a  fi-e  occurred,  as  shown  by  the 
evidence  and  found  by  the  jury,  wholly  destroying  "  the  frame  store- 
house building  and  shed  adjoining,  as  well  as  the  scales,  and  also 
damaged  slightly  some  of  the  other  property."  The  aggregate 
amount  of  insurance  upon  the  property  so  destroyed  at  the  time  of 
the  fire  was  $2,700,  in  seven  different  companies,  including  the 
defendant  company,  which  carried  one-fifth  of  the  risk  thereon. 
The  nature  of  the  defense  will  appear  from  the  opinion.  On  the 
trial,  August  18,  1887,  the  jury  returned  a  verdict  of  $220.63.  From 
the  judgment  entered  thereon  the  defendant  appeals. 

Cassoday,  J.  —  I.  Upon  the  verdict  of  the  jury  it  must  be 
assumed  that  the  building  mentioned  was  wholly  destroyed  by  the 
fire.  At  the  time  of  such  destruction  it  was  insured  in  seven 
different  companies,  in  the  aggregate  $2,700,  one-fifteenth  of  which 
was  in  the  defendant  company.  The  evidence  tended  to  show  that 
the  value  of  the  building  at  the  time  of  the  fire  was  about  $1,200. 
The  defendant  concedes  that,  if  it  is  liable  at  all,  it  should  pay  its  pro- 
portionate share  of  the  true  value  of  the  building,  but  insists  that  it 
is  not  bound  to  pay  the  amount  specified  in  the  policy.  The  contract 
of  insurance  was  made  under  a  statute  which  declared  that  "  when- 
ever any  policy  of  insurance  shall  be  written  to  insure  any  real 
property,  and  the  property  insured  shall  be  wholly  destroyed  with- 
out criminal  fault  on  the  part  of  the  insured  or  his  assigns,  the 
amount  of  the  insurance  written  in  such  policy  shall  be  taken  con- 
clusively to  be  the  true  value  of  the  property  when  insured,  and  the 
true  amount  of  loss  and  measure  of  damages  when  destroyed." 
§  1943,  R.  S.  Under  this  statute  it  is  settled  by  frequent  adjudi- 
cations that  the  actual  value  of  such  real  estate  when  insured  or 
destroyed,  and  the  consequent  actual  loss  to  the  insured,  is  wholly 
immaterial.  Reilly  v.  Franklin  Ins.  Co.,  43  Wis.  449;  Thompson  v. 
Citizens'  Ins.  Co.,  45  Wis.  388;  Cayon  v.  D-icelling  House  Ins.  Co.,  68 
Wis.  515,  516.  This  is  the  necessary  result  of  the  language  of  the 
statute  making  "  the  amount  of  the  insurance  written  in  such  policy  " 
conclusive  between  the  parties  to  the  contract,  not  only  as  to  "  the 
true  value  of  the  property  7iihcn  insured,"  but  also  as  to  "  the  true 
amount  of  loss  and  measure  of  damages  when  destroyed." 

The  statute  must  be  regarded  as  a  part  of  the  contract  of  insur- 
ance, and  the  amount  written  in  the  policy  as  liquidated  damages 
agreed  upon  by  the  parties  conclusively  in  such  contract.  The  sev- 
eral concurrent  policies  were  each  written  with  the  consent  of  the 
respective  companies.  This  being  so,  the  aggregate  amount  of  such 
insurance  written  in  the  several  policies  is  the  value  of  such  property 
as  stipulated  in  each  contract,  and   hence,  as  between  the  parties, 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  211 

must  be  regarded  as  conclusive,  not  only  as  to  "  the  true  value  of 
the  property  when  insured,"  but  also  as  to  "  the  true  amount  of  loss 
and  measure  of  damages  when  destroyed."  This  must  be  so,  or 
the  statute  would  be  wholly  ineffectual  whenever  there  is  more  than 
one  policy  on  the  same  property.  And  this  is  so  notwithstanding 
other  clauses  in  the  policies  inconsistent  therewith.' 

The  result  is  that  the  exceptions  to  such  portions  of  the  charge 
as,  in  effect,  directed  the  jury  that  in  case  they  found  the  build- 
ing to  have  been  wholly  destroyed,  then  the  plaintiffs  were 
entitled  to  recover  the  full  amount  written  in  the  policy,  must  be 
overruled.     *     *     * 

The  judgment  of  the  County  Court  is  affirmed,* 


lo.  Limitation  of  Time  to  Sue. 

Field,  J.,  in  RIDDLESBARGER  v.  HARTFORD 
INSURANCE  CO. 

7  Wall.  386.—  1868. 

By  the  demurrer  to  the  replication  two  questions  are  presented 
for  our  determination:  First:  whether  the  condition  against  the 
maintenance  of  any  action  to  recover  a  claim  upon  the  policy, 
unless  commenced  within  twelve  months  after  the  loss,  is  valid.   *  *  * 

The  objection  to  the  condition  is  founded  upon  the  notion  that 
the  limitation  it  prescribes  contravenes  the  policy  of  the  statute  of 
limitations.  This  notion  arises  from  a  misconception  of  the  nature 
and  object  of  statutes  of  this  character.  They  do  not  confer  any 
right  of  action.  They  are  enacted  to  restrict  the  period  within 
which  the  right,  otherwise  unlimited,  might  be  asserted.  They  are 
founded  upon  the  general  experience  of  mankind  that  claims,  which 

'  The  policy  in  suit  contained,  among  other  clauses,  the  following-  "  In  case 
of  any  other  insurance  upon  the  property  hereby  insured,  whether  made  prior 
or  subsequent  to  the  date  of  this  policy,  the  insured  shall  be  entitled  to  recover 
of  this  company  no  greater  proportion  of  the  loss  sustained  than  the  sum  hereby 
insured  bears  to  the  who  e  amount  insured  thereon,  whether  by  specific  or  float- 
ing policies." 

''  The  reasons  leading  to  the  adoption  of  valued  policy  statutes  and  the  objects 
they  were  intended  to  accomplish  are  stated  in  Insurance  Co.  v.  Leslie,  47  Ohio 
St.  409,  413-14.  The  constitutionality  of  these  siatules.  which  was  attacked 
upon  the  ground  that  they  "  take  away  a  fundamental  right  "  and  preclude  "  a 
judicial  inquiry  of  liability  on  policies  of  fire  insurance  by  a  conclusive  pre- 
sumption of  fact,"  was  upheld  in  Orient  Ins.  Co.  v.  Daggs,  172  U.  S.  557.  An 
overvaluation  by  the  injured  under  a  valued  policy,  unless  made  fraudulently. 


212  THE   TERMS    OF   THE    INSURANCE    CONTRACT. 

are  valid,  are  not  usually  allowed  to  remain  neglected.  The  lapse 
of  years  without  any  attempt  to  enforce  a  demand  creates,  there- 
fore, a  presumption  against  its  original  validity,  or  that  it  has 
ceased  to  subsist.  This  presumption  is  made  by  these  statutes  a 
positive  bar;  and  they  thus  become  statutes  of  repose,  protecting 
parties  from  the  prosecution  of  stale  claims,  when,  by  loss  of  evi- 
dence from  death  of  some  witnesses,  and  the  imperfect  recollection 
of  others,  or  the  destruction  of  documents,  it  might  be  impossible 
to  establish  the  truth.  The  policy  of  these  statutes  is  to  encourage 
promptitude  in  the  prosecution  of  remedies.  They  prescribe  what  is 
supposed  to  be  a  reasonable  period  for  this  purpose,  but  there  is 
nothing  in  their  language  or  object  which  inhibits  parties  from  stip- 
ulating for  a  shorter  period  within  which  to  assert  their  respective 
claims.  It  is  clearly  for  the  interest  of  insurance  companies  that  the 
extent  of  losses  sustained  by  them  should  be  speedily  ascertained, 
and  it  is  equally  for  the  interest  of  the  assured  that  the  loss  should 
be  speedily  adjusted  and  paid.  The  conditions  in  policies  requiring 
notice  of  the  loss  to  be  giv^en,  and  proofs  of  the  amount  to  be  fur- 
nished the  insurers  within  certain  prescribed  periods,  must  be  strictly 
complied  with  to  enable  the  assured  to  recover.  And  it  is  not  per- 
ceived that  the  condition  under  consideration  stands  upon  any 
different  footing.  The  contract  of  insurance  is  a  voluntary  one, 
and  the  insurers  have  a  right  to  designate  the  terms  upon  which 
they  will  be  responsible  for  losses.  And  it  is  not  an  unreasonable 
term  that  in  case  of  a  controversy  upon  a  loss  resort  shall  be  had 
by  the  assured  to  the  proper  tribunal,  whilst  the  transaction  is 
recent,  and  the  proofs  respecting  it  are  accessible.     *     *     * 

The  validity  of  the  limitation  stipulated  in  conditions  similar  to  the 
one  in  the  case  at  bar,  has  been  elaborately  considered  in  the  highest 
courts  of  several  of  the  States,  Peoria  Ins.  Co.  v.  Whitehill,  25  111. 
466;  Williams  v.  Mutual  Ins.  Co..,  20  Vermont,  222;  Wilson  v. 
^tna  Ins.    Co.,    27    Id.    99;  N.    W.    Ins.    Co.  v.  Fhcenix  Oil  Co.,  t,i 


is  to  be  deemed  a  matter  of  opinion  and  cannot  affect  the  recovery.     Cushman 
V.  Co.,  34  Me.  487,  495;    Vergei-ont  v.  Co.,  86  Wis.  425.  426. 

As  to  what  will  constitute  a  total  loss  under  a  valued  policy,  it  was  held  in 
Havens  v.  Ins.  Co.,  123  Mo.  403,  ihat  where  a  mill  and  machinery  were  insured 
for  $8,400  and  were  destroyed  by  fire,  except  machinery  worth  $380,  which  had 
been  removed  for  repairs,  the  loss  was  total  and  the  valuation  in  the  policy 
musi  be  paid  less  a  deduction  of  $380.  So,  too,  in  Gaman  Ins.  Co.  v.  Eddy,  36 
Neb.  461,  the  loss  was  held  to  be  total  where  only  the  brick  walls  of  the  insured 
building  were  left  standing  after  the  fire,  and  so  badly  injured  that  they  would 
have  to  be  taken  down.  H,  however,  the  insured  were  to  use  the  brick  to 
rebuild,  the  insurer  would  be  entitled  to  a  deduclion  for  the  value  of  such  brick. 


TERMS   OF   THE   FIRE    INSURANCE   CONTRACT.  213 

Penn.  St.  449;  Broivn  and  Wife  v.  Savannah  Ins.  Co.,  24  Georgia, 
loi;  Portage  Ins.  Co.  v.  West.,  6  Ohio  St.  602;  Amesbury  v.  Bowditch 
Ins.  Co.,  6  Gray,  603;  Fuilam  v.  Netv  York  Ins.  Co.,  7  Gray,  61; 
Carter  v.  Humboldt,  12  Iowa,  287;  Stout  v.  City  Ins.  Co.,  Id.  371; 
Ripley  yi .  yEtna  Ins.  Co.,  29  Barbour,  552;  Gooden  v.  Amoskeag  Co., 
20  N.  H.  73;  Brown  v.  Roger  Williams  Co.,  5  Rhode  Island,  394, 
7  Id.  301 ;  Ames  v.  New  York  Ins.  Co.,  4  Kernan,  253;  and  has  been 
sustained  in  all  of  them,  except  in  the  Supreme  Court  of  Indiana, 
The  Eagle  Ins.  Co.  v.  Lafayette  Ins.  Co.,  9  Indiana,  443,  which  fol- 
lowed an  adverse  decision  of  Mr.  Justice  McLean  in  the  Circuit 
Court  for  the  district  of  that  State,  French  v.  Lafayette  Ins.  Co., 
5  McLean,  461.  Its  validity  has  also  been  sustained  by  Mr.  Justice 
Nelson  in  the  Circuit  Court  for  the  District  of  Connecticut,  Cray 
V.    Hartford  Ins.  Co.,  i  Blatchford,  280.     *     *     *  • 


HART  V.  CITIZENS'  INSURANCE  CO. 

86  Wis.  77.  —  1893. 

The  plaintiff  appeals  from  a  judgment  in  favor  of  the  defendant. 

WiNSLOvv,  J.  —  The  action  is  upon  a  policy  of  insurance  issued  by 
defendant,  November  11,  1890,  upon  plaintiff's  dwelling-house. 
There  is  no  dispute  as  to  the  facts.  The  house  was  burned  March 
5,  1891.  Proofs  of  loss  were  served  May  i,  1891,  being  within  the 
time  required  by  the  policy.  The  defendant  refused  payment  May 
9,  1891,  and  plaintiff  commenced  this  action  May  3,  1892,  nearly 
fourteen  months  after  the  fire. 

The  policy  contained  provisions  requiring  immediate  notice  of 
loss,  proofs  within  sixty  days  after  the  fire,  examination  of  the 
assured  under  oath  if  desired,  and  appraisal  in  case  of  disagreement 
as  to  amount  of  loss;  also  the  following:  "  This  company  shall 
not  be  held  to  ha^e  waived  any  provision  or  condition  of  this  policy 
or  any  forfeiture  thereof  by  any  requirement,  act,  or  proceeding  on 
its  part  relating  to  the  appraisal  or  to  any  examination  herein 
provided  for;  and  the  loss  shall  not  become  payable  until  sixty 
days  after  the  notice,  ascertainment,  estimate,  and  satisfactory 
proof  of  the  loss  herein  required  have  been  received  by  this  com- 
pany, including  an  award  by  appraisers  when  appraisal  has  been 
required.  No  suit  or  action  on  this  policy  for  the  recovery  of  any 
claim  shall  be  sustained  in  any  court  of  law  or  equity  until  after  full 

*  Contra,  Miller  v.  Ins.  Co.,  54  Neb.  121. 


214  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

compliance  by  the  insured  with  all  the  foregoing  requirements,  nor 
unless  commenced  within  twelve  months  next  after  the  fire." 

It  was  held  by  the  Circuit  Court  that  the  action  was  barred 
because  not  commenced  within  twelve  months  next  after  the  dai.: 
of  the  fire,  and  plaintiff  appeals. 

It  is  well  settled  that  a  clause  in  a  contract  limiting  the  time 
within  which  an  action  may  be  commenced  thereon  to  a  time  shorter 
than  that  allowed  by  the  statute  of  limitations  is  valid.  The  ques- 
tion here  is  whether  the  expression  "  twelve  months  after  the  fire  " 
means  what  it  says  or  something  else.  It  is  to  be  noticed  that  the 
parties  here  have  not  used  the  expression  "  after  the  loss  occurs." 
Had  this  been  the  language  used,  it  might  reasonably  be  claimed, 
upon  authority,  that  the  "  loss  occurs,"  not  at  the  date  of  the  fire, 
but  when  the  loss  is  ascertained  and  established  and  the  right  to 
bring  an  action  exists.  The  decisions  'n  favor  of  this  doctrine  are 
numerous.  Steen  v.  Niagara  F.  Ins.  Co.,  89  N.  Y.  315;  Spare  v. 
Home  Mut.  Ins.  Co.,  17  Fei.  Rep.  568;  Chandler  w  St.  Paul  F.  cr" 
M.  Ins.  Co.,  21  Minn.  85;  Ellis  v.  Council  Bluffs  Ins.  Co.,  64  Iowa, 
507;  Miller  V.  Hartford  F.  Ins.  Co.,  70  Iowa,  704;  German  Ins.  Co.  v. 
Fairbank,  32  Neb.  750;  Barber  v.  Fired^  M.  Ins.  Co.,  16  W.  Va.  658. 

There  are,  however,  many  decisions  to  the  contrary.  Chambers 
V.  Atlas  Ins.  Co.,  51  Conn.  17;  Johnson  v.  Humboldt  Ins.  Co.,  91  111. 
92;  Fullam  V.  Neiv  York  Union  Ins.  Co.,  7  Gray,  61;  Glass  v. 
Walker,  66  Mo.  12;  Bradley  v.  Phxnix  Ins.  Co.,  28  Mo  App.  7; 
Virginia  F.  ^  M.  Ins.  Co.  v.  JVells,  83  Va.  736;  Peoria  Sugar 
Refining  Co.  v.  Canada  F.  or'  M.  Ins.  Co.,  12  Ont.  App.  418;  Blair 
V.  Sovereign  Ins.  Co.,  19  N.  S.  372;  Travellers'  Ins.  Co.  v.  California 
Ins.  Co.,  I  N.  Dak.  151;  Schroeder  v.  Keystone  Ins.  Co.,  2  Phila    286. 

Other  cases,  bearing  more  or  less  directly  upon  the  question, 
might  be  cited  upon  either  side  of  the  proposition.  It  seems 
apparent  that  it  can  hardly  be  said  that  the  great  weight  of  authority 
is  on  either  side.  It  is  a  case  where  there  are  two  directly  opposing 
lines  of  authorities,  both  very  respectable  in  numbers  and  weight. 
It  was  claimed  by  appellant  that  this  court  had  substantially 
approved  of  the  afifirmative  view  of  the  proposition  in  Killips  v.  Put- 
nam F.  Ins.  Co.,  28  Wis.  472,  and  Black  v.  Winneshiek  Ins.  Co.,  31  Wis. 
74.  Examination  of  these  cases  shows  that  this  court  expressly 
declined  to  pass  upon  this  question.  The  principle  laid  down  in 
them  is  simply  that  if  the  insurance  company,  by  its  acts,  induces 
the  insured  to  suspend  his  proceedings  and  delay  action  on  the 
policy,  the  time  elapsing  during  such  delay  so  caused  should  not  be 
reckoned  as  a  part  of  the  time  limited  for  the  bringing  of  the  action. 
It  is  an  application  of  the  familiar  principle  of  estoppel. 


TERMS   OF   THE    FIRE   INSURANCE    CONTRACT.  21 5 

Doubtless  the  tendency  of  so  many  courts  to  construe  the  "  loss  " 
as  meaning  the  time  when  liability  was  fixed,  induced  many  insur- 
ance companies  to  substitute  the  word  "  fire,"  as  in  the  policy 
bjfore  us.  It  would  seem  as  if  the  phrase  "twelve  months  next 
after  the  fire  "  was  susceptible  of  but  one  meaning;  yet  the  courts 
have  disagreed  upon  this  question  also.  In  the  following  cases  it 
has  been  held  that  the  word  "  fire  "  is  to  be  construed  as  meaning, 
not  the  date  of  the  fire,  but  the  time  when  liability  is  fixed  and  an 
action  accrues  to  the  insured;  Friezen  v.  Alletnania  F.  Ins.  Co.,  30 
Fed.  Rep.  352;  Hong  Sling  v.  Royal  Ins.  Co..,  7  Utah,  441;  Casew. 
Sun  Ins.  Co.,  83  Cal.  473.  On  the  other  hand,  the  following  cases 
hold  that  the  limitation  begins  to  run  from  the  date  of  the  fire: 
Steel  V.  Phenix  Ins.  Co.,  47  Fed.  Rep.  863;  State  Ins.  Co.  v.  Alees- 
man,  2  Wash.  459;  McElroy  v.  Continental  Ins.  Co.,  48  Kan.  200; 
State  Ins.  Co.  v.  St  off  els,  48  Kan.  205 ;  King  v.  Watertown  Ins.  Co.-, 
47  Hun,  I. 

It  is  noticeable  that  all  of  the  three  cases  above  cited  which  hold 
that  "  fire  "  means  the  time  when  liability  is  fixed,  rely  for  authority 
upon  the  cases  which  construe  the  word  "  loss  "  as  having  such 
maaning.  No  attention  seems  to  have  been  given  to  the  fact 
that  the  word  "fire"  has  been  substituted  for  the  word  "loss." 
It  is  also  noticeable  that  in  the  case  of  Case  v.  Sun  Ins.  Co., 
83  Cal.  473,  the  facts  were  that  the  insured  was  compelled  to 
submit  to  examination  by  the  company,  and  to  produce  books, 
bills  and  invoices,  and  that  he  complied  with  these  requirements  as 
rapidly  as  he  was  able,  but  was  unable  to  fully  comply  therewith 
until  more  than  thirteen  months  after  the  fire,  or  a  month  after  the 
expiration  of  the  time  limited  for  bringing  suit.  Here,  certainly, 
was  a  clear  case  of  estoppel.  The  company,  by  its  own  acts,  had 
postponed  the  time  when  a  cause  of  action  accrued  until  after  the 
limitation  had  run,  and  should  clearly  be  denied  the  right  to  rely 
upon  the  limitation.  See,  to  this  effect,  Thompson  v.  Phenix  Ins. 
Co.,  136  U.  S.  287.  The  cases  of  Friezen  v.  Alleniania  F.  Ins.  Co., 
30  Fed.  Rep.  352,  and  Hong  Sling  v.  Foyal  Ins.  Co.,  7  Utah,  441,  are, 
however,  direct  authorities  to  the  effect  that  "  twelve  months  after 
the  fire"  means  twelve  months  after  the  liability  is  fixed.  The 
argument  in  support  of  this  view  is  briefly  that  all  clauses  of  the 
policy  must  be  construed  together;  that  there  are  clauses  whicn 
necessitate  the  making  of  proofs,  the  submission  of  the  assured  to 
examination  if  required,  the  production  of  books  and  papers,  and 
the  submission  of  the  question  of  the  amount  of  loss  to  appraisers, 
all  of  which  things  will  consume  time;  and,  furthermore,  the  ]oss 
not  being  payable  until  sixty  days  after  the  amount  is  fixed,  it  may 


2l6  THE    TERMS    OF   THE    INSURANCE   CONTRACT. 

happen  that  more  than  twelve  months  may  elapse  after  the  date  of 
the  fire  before  the  company  can  be  sued;  and  thus  the  plaintiff's 
action  may  be  cut  off  entirely  if  a  literal  meaning  is  to  be  given  to 
the  words.  The  deduction  is  that  the  parties  cannot  have  meant 
what  they  said  in  the  clause  under  consideration,  but  must  have 
meant  sometihng  else,  which  they  did  not  say. 

We  cannot  assent  to  this  line  of  reasoning.  It  does  violence  to 
plain  words.  It  smacks  too  strongly  of  making  a  contract  which 
the  parties  did  not  make.  It  construes  where  there  is  no  room  for 
construction.  Plain,  unambiguous  words  which  can  have  but  one 
meaning  are  not  subject  to  constructions.  "  Twelve  months  next 
after  the  fire  "  has  one  certain  meaning  and  l)ut  one.  It  can  have 
no  other.  It  may  well  be  that  the  insurer  may  by  his  acts  waive 
the  limitation,  or  estop  himself  from  insisting  on  it,  as  held  in  the 
cases  of  Killips  v.  Putnain  F.  Ins.  Co.,  28  Wis.  472;  Black  v.  Winne- 
shiek Ins.  Co.y  31  Wis.  74,  and  Tliompson  v.  Phenix  Ins.  Co.,  136  U.  S- 
287 ;  but  the  invocation  of  this  principle  does  no  violence  to  the  con- 
tract of  the  parties.  There  is  no  element  of  estoppel  present  here, 
however.  The  defendant  company  have  done  nothing  which  has 
induced  the  insured  to  suspend  proceedings  or  delay  his  action. 
They  notified  him  at  once  on  the  receipt  of  his  proofs  that  they 
denied  liability.  They  did  not  require  him  to  do  anything.  He 
had  nearly  ten  months  in  which  to  bring  his  suit.  By  failing  to  do 
so  he  must  be  held  to  be  barred  by  his  contract. 

The  provision  of  §  1975,  R.  S.,  to  the  effect  that  no  insurance 
policy  shall  contain  a  provision  that  no  action  or  suit  shall  be 
brought  thereon,  is  not  applicable,  because  the  clause  under  con- 
sideration is  plainly  not  such  a  provision. 

By  the  Court.  — Judgment  affirmed.' 

'  "  What  right  has  any  tribunal  to  find  hidden  somewhere  in  the  contract  a 
privilege  to  have  the  full  time  to  sue  after  the  cause  of  action  has  accrued, 
when  the  policy  gives  it  only  from  the  time  the  loss  occurs?  There  are  two  dis- 
tinct provisions — one  that  the  insured  shall  not  sue  before  a  certain  time, 
another  that  he  shall  not  sue  after  a  certain  time.  These  do  not  clash.  They 
merely  necessitate  the  construction  that  the  intention  was  to  give  the  insured 
such  period  in  which  to  maintain  his  action  after  he  could  sue  as  would  be  left 
after  deducting  from  the  time  limited  the  time  which  must  elapse  before  the 
right  to  sue  could  accrue.  But  we  find  in  these  cases  this  e.xtraordinary  reason- 
ing: They  assert  that  this  doctrine  will  often  kill  the  action  before  it  could 
have  life.  The  answer  is  short  and  simple.  Every  limitation  in  a  contract  is 
void  which  does  not  leave  the  plaintiff  a  reasonable  time  in  which  to  sue  after 
his  right  to  sue  has  become  perfect.  *  *  *  Tf  other  provisions  of  the  policy 
make  it  appear  that  in  every  case  a  reasonable  time  will  not  be  left  after  the 
right  to  sue  has  become  perfect,  the  limitation  is  void.     If,  acting  in  good  faith. 


TERMS   OF   THE    MARINE   INSURANCE   CONTRACT.  21/ 

III.  Terms  of  the  Marine  Insurance  Contract. 

I.   Attachment  of  the  Risk. 

HAUGHTON  and  Others  v.  EMPIRE  MARINE  INSURANCE 
COMPANY  (Limited.) 

L.  R.  I  Ex.  206.  —  1866. 

Declaration  on  a  valued  policy  of  insurance  on  the  ship  Urgent, 
"  lost  or  not  lost,  a/  and  from  Havana  to  Greenock,"  alleging  that 
the  ship  when  at  Havana,  and  after  the  commencement  and  during 
the  continuance  of  the  risk,  sustained  injury  by  the  perils  insured 
against. 

Channell,  B.  —  This  was  an  action  on  a  valued  policy  on  the  ship 
Urgent,  lost  or  not  lost,  at  and  from  Havana  to  Greenock,  and  the 
question  for  us  to  determine  is,  whether  or  not  the  risk  had 
attached  at  the  time  when  the  damage  occurred.  A  verdict  was 
entered  at  the  trial  for  the  plaintiffs,  and  a  rule  has  been  obtained 
by  the  defendants  to  enter  a  nonsuit  pursuant  to  leave  reserved. 
The  facts  are  before  us  on  the  judges'  notes  and  in  certain  docu- 
ments admitted  in  evidence,  and  we  are  to  be  at  liberty  to  draw 
inferenpes  of  fact.  It  appears  that  the  Urgent,  having  arrived  off 
Havana,  the  captain  engaged  the  services  of  a  steam-tug  and  a  pilot 
for  the  purpose  of  taking  her  to  a  clear  anchorage.  She  was  towed 
into  the  harbor,  past  the  point  where  she  ultimately  discharged  her 
cargo,  to  a  point  at  the  head  of  the  harbor,  called  the  Regla  Shoal. 
There  she  grounded,  and  received  damage  from  the  anchor  of 
another  ship.  In  my  opinion  she  was  at  that  time  at  Havana,  and 
consequently  the  risk  under  the  policy  had  attached.  The  damage 
occurred  at  Havana,  geographically  speaking,  and  there  is  nothing 
which,  to  my  mind,  shews  that  the  parties,  at  the  time  this  policy 
was  underwritten,  contemplated  any  other  meaning  of  the  word 
" «/."  All  the  limitation  which  tire  law  appears  ever  to  have 
imposed  as  to  the  time  of  the  commencement  of  the  risk  in  such  a 
case  is,  that  the  ship  should  arrive  at  the  port  at  which  she  is 
insured  in  a  state  of  sufficient  repair  or  seaworthiness  to  be  enabled 


and  wtih  all  proper  diligence,  it  transpires  in  any  particular  case  that  other 
conditions  of  the  policy  to  be  complied  with  as  conditions  precedent  to  a  right  of 
action  could  not  be  performed  in  time  to  leave  a  reasonable  time  thereafter  in 
which  to  sue,  the  limitation  is  inoperative  in  such  a  case.  *  *  *  Thus  the 
insured  is  fully  protected  by  the  application  of  known  and  established  princi- 
ples. The  contract  is  construed  as  it  is  written,  and  the  lime  when  the  limita- 
tions begin  lo  run,  if  at  all,  is  fixed,  and  not  uncertain."  —  Travelers'  Ins.  Co. 
V.  Ins,  Co.,  1  N.  Dak.  151. 


2l8  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

to  l)e  there  in  safety.  See  Panneter  v.  Cousins,  2  Camp.  235,  and 
Biil  V.  Bell,  2  Camp.  475,  in  the  latter  of  wliich  cases  the  ruling  of 
Lord  Ellenboroiigh,  C.  J.,  a.1  A^isiPrii/s,  was  upheld  by  the  court  in 
banc.  Here,  however,  there  seems  to  be  no  doubt  that  tlie  ship 
was  really  in  the  harbor  in  good  safety,  and  the  loss  occurred  from 
a  peril  in  the  harbor,  and  in  no  way  from  any  injuries  she  had 
received  before  her  arrival.  The  ship  being  insured  while  at  Havana 
is  evidently,  in  the  absence  of  any  provision  to  the  contrary,  insured 
all  the  time  she  is  there,  and,  therefor,  the  risk  commences  on  her 
first  arrival,  as  put  by  Lord  Hardwicke  in  Motteaux  v.  London  Assur- 
ance Company,  i  Atk.  545. 

Unless,  therefore,  we  can  say  that  her  first  arrival  at  the  port  is 
when  she  casts  anchor  there,  instead  of  when  she  enters  the  port, 
our  judgment  must  be  for  the  plaintiffs.  \w  many  cases  the  nature 
of  the  port  may  be  such  that  the  two  events  may  be  identical. 
There  may  be  nothing  to  shew  the  arrival  till  the  vessel  casts 
anchor.  But  here  we  have  evidence  as  to  the  port  of  Havana  which 
is  sufficient,  in  my  judgment,  to  shew  that  the  arrival  was  before 
casting  anchor.  It  has  been  argued  that  the  first  arrival,  which 
must  be  no  doubt  in  good  safety,  must  be  identical  with  the  moor- 
ing in  good  safety  usually  named  in  outward  policies.  ButT  think 
we  cannot  construe  the  terms  of  one  contract  by  reference  to  those 
of  another  not  referred  to  in  it.  And  it  is  clear  that  there  is  no 
usage  that  the  duration  of  the  outward  and  homeward  policies 
should  not  overlap,  because  the  outward  policy  usually  extends  to 
twenty-four  hours  after  the  vessel  is  moored  in  good  safety.  Dur- 
ing those  twenty-four  hours  there  is  no  question  that  there  is  a 
double  insurance,  and,  therefore,  I  see  no  ground  for  saying  that  the 
parties  contracted  subject  to  any  usage  that  such  a  policy  should 
not  attach  until  the  previous  one  had  determined.  If  they  had 
wished  to  make  such  a  condition  it  might  easily  have  been  done;  or 
if,  having  in  view  any  special  dangers,  as  shoals  (;r  the  like,  within 
the  port  of  Havana,  they  had  chosen  to  make  the  risk  date  from  the 
vessel  being  moored  in  safety,  they  would  have  done  so;  but  as  it 
stands  it  is  from  the  first  arrival,  which,  as  a  matter  of  fact,  I  think 
to  be  on  her  entering  the  port  My  judgment  is,  therefore,  for  the 
plaintiffs,  that  the  rule  be  discharged. 

[Opinion  also  by  Pigott,  B.J 


TERMS   OF   THE    MARINE    INSURANCE   CONTRACT.  219 

2.   Termination  of  thp:  Risk:. 
WHITWELL  V.  HARRISON. 
2  ExcH.  127.  —  1848. 

Alderson,  B.  —  This  was  an  action  on  a  policy  of  assurance,  on 
the  ship  Governor  Halket,  at  and  from  Quebec  to  her  port  of  dis- 
charge in  the  United  Kingdom.  By  the  charter-party  of  the  vessel, 
which  was  put  in,  the  vessel  was  chartered  to  take  on  board  a  cargo 
of  timber  at  Quebec,  and  to  proceed  therewith  to  Wallasey  Pool,  in 
the  river  Mersey,  or  as  near  thereto  as  she  could  safely  get,  and 
there  discharge  her  cargo. 

It  appeared  at  the  trial  that  the  vessel  sailed  from  Quebec  on  the 
23d  of  July,  1845,  and  arrived  in  the  Mersey  on  the  4th  of  Septem- 
ber, and  came  to  an  anchor  at  the  Bell  Buoy  in  that  river.  The 
next  morning  she  was  towed  by  a  steam-boat,  and  came  abreast  of 
Wallasey  Pool;  but  being  unable  to  get  into  Wallasey  Pool,  by 
reason  of  her  too  great  draft  of  water,  the  captain  anchored  her 
there,  and  proceeded  to  Liverpool  to  report  the  vessel,  and  engaged 
lumpers  to  discharge  the  cargo  at  a  fixed  rate  of  payment,  which 
was  to  include  the  expense  of  rafting  the  timber  from  the  vessel 
into  Wallasey  Pool,  and  discharged  his  crew,  as  was  usual  on 
a  ship's  arrival  at  Liverpool,  altogether.  He  then  proceeded  to 
discharge  the  deck  cargo,  and  afterwards  a  considerable  portion  of 
the  other  cargo,  by  the  usual  mode,  at  the  stern  port,  from  the  hold 
of  the  vessel;  and  after  occupying  in  this  way  several  days,  the  ship 
being  at  anchor,  on  the  14th  of  September,  fell  over  and  sustained 
damage,  the  subject  of  the  present  action;  and  the  question  is, 
whether  the  underwriters  were  at  the  time  of  this  accident  off  the 
policy,  by  reason  of  the  vessel  having  been  moored  in  safety  twenty- 
four  hours  after  her  arrival  at  her  port  of  discharge.  It  appeared 
in  evidence,  that  the  captain  always  intended  ultimately  to  carry 
the  vessel  into  Wallasey  Pool,  with  as  much  of  the  cargo  on  board, 
as  she  could  carry  over  the  shallow  part  intervening  between  his 
original  anchorage  and  the  pool.  But  it  was  also  clearly  established 
that  the  discharge  of  the  cargo  was  going  on  in  due  course,  and  that 
if  the  water  were  not  sufficient,  and  no  accident  had  occurrred,  the 
whole  cargo  would  have  been  discharged  in  the  place  where  the 
vessel  was  moored. 

My  Brother  Rolfe  held,  under  these  circumstances,  that  the 
underwriters  were,  not.  liable  and  we  think  he  was  right  ja.so  hold- 
ing. Here  the  ship  was  bound  to  Wallasey  Pool,  or  as  near  thereto 
as  she  could  safely  get,  and  it  is  clear  that  that  was  the  intended 
place   for  the   discharge   of  her   cargo.     The  cases  on  this  subject 


220  THE   TERMS   OF   THE   INSURANXE   CONTRACT. 

are  well  collected  in  Mr.  HildyarJ's  edition  of  Park  on  Insurance, 
vol.  i,  p.  73.  We  were  referred  in  the  argument  to  Samuel  v.  The 
Royal  Exchange  Company,  8  B.  &  C.  119;  but  this  case  is  clearly 
distinguishable  from  it,  because  there  the  vessel  had  n  )t  arrived  at 
the  place  where  any  part  of  her  cargo  was  ever  intended  to  be  dis- 
charged; .the  vessel  here  had  on  the  5th  of  September  arrived  as 
near  Wallasey  Pool  as  she  could  safely  get,  and  did  actually  begin 
to  discharge  her  cargo  accordingly,  discharging  her  crew  altogether, 
and  leaving  none  of  them  on  board  for  the  purpose  of  further  navi- 
gation. The  case  of  Brereton  v.  Chapman,  7  Bing.  559,  does  not 
appear  to  us  at  all  to  affect  this  question.  There  the  vessel  was 
still  m  progress  to  the  ultimate  place  for  the  discharge  of  her 
whole  cargo,  and  all  that  was  done  was  to  put  on  board  lighters 
a  portion  of  her  cargo,  in  order  that  the  vessel  might  be  enabled 
thereby  without  delay  to  proceed  with  them  to  the  usual  place  of 
discharge.  There  the  whole  crew  remained  on  board,  and  the  vessel 
was  in  all  respects  really  continuing  her  voyage.  Keyser  v.  Scott,  4 
Taunt.  660,  and  Dalgleish  v.  Brooke,  15  East.  299,  are  authorities 
showing  rather  that  "  the  port  of  discharge  "  includes  the  whole 
port  within  which  any  portion  of  the  cargo  is  usually,  according  to 
the  custom  of  such  port,  taken  out  of  the  vessel.  These  are 
authorities  going  on  a  totally  different  principle,  viz.,  that  of  the 
construction  of  a  warranty  from  seizure  in  the  port  of  discharge; 
but,  if  at  all  applicable  to  the  present  question,  they  go  further 
than  this  case  requires  us  to  do.  Upon  the  whole,  we  think  that 
here  the  vessel  had  clearly  arrived  at  her  poit  of  discharge,  and 
was  actually  in  the  course  of  discharging  her  cargo,  and  had  moored 
there  twenty-four  hours  in  safety  before  the  accident  occurred. 
The  rule  therefore  must  be  discharged.' 


3.    Deviation. 


ENDICOTT,  J.,  IN  BURGESS  v.  EQUITABLE  MARINE 
INSURANCE  COMPANY. 

126  Mass.  70,  78.  —  1878. 
It  may  be  stated  in  general  terms  that  the  assured  is  protected 
by   his  policy,  while   the  vessel  pursues  the  usual  and  customary 
course  of  the  voyage;  but  any  departure  from  the  course,  or  delay 


'  "  The  voyage  is  understood  to  be  terminated  when  the  vessel  arrives  at  her 
port  of  destination,  and  has  been  moored  there  in  safely  for  twenty-four  hours." 
—  Grade  v.  Marine  Ins.  Co.,  8  Cranch,  75,  82. 


TERMS   OF   THE    MARINE    INSURANCE   CONTRACT.  221 

in  prosecuting  it,  without  necessity  or  just  cause,  is  a  deviation  and 
discharges  the  insurer,  because  another  voyage  has  been  voluntarily 
substituted  for  that  which  was  insured.  Whether  the  degree  or 
period  of  the  risk  is  increased,  is  unimportant,  as  the  assured  has  no 
right  to  substitute  a  different  risk.  Whenever,  therefore,  there  is  a 
manifest  departure  from  the  course  of  the  voyage,  the  assured  must 
show  that  it  was  justified  by  the  necessity  of  the  case.  Stacker  v. 
Harris^  3  Mass.  409,  418;  Brazier  v.  Clcip^  5  Mass.  i;  Coffin  v. 
Newburyport  Ins.  Co.,  9  Mass.  436,  449;  Kncttell  v.  Wiggin,  13 
Mass.  68. 

In  the  case  at  bar,  the  alleged  necessity  arose  from  scarcity  of 
bait.  The  plaintiff  did  not  put  on  board,  when  the  vessel  sailed 
from  Plymouth,  enough  for  the  entire  trip.  Squid  had  been  plenty 
on  the  Banks  during  several  years  prior  to  1874,  and  the  plain- 
tiff relied  upon  catching  them  there  and  using  them  for  that 
purpose.  They  happened  this  season  to  be  very  scarce,  and,  after 
fishing  three  weeks,  and  nearly  exhausting  his  supply,  the  master 
sailed  for  St.  Peter's,  over  100  miles  distant,  procured  bait,  and 
returned  to  the  Banks  after  an  absence  of  a  week.  It  is  to  be 
observed,  that  this  so-called  necessity  did  not  arise  from  any  peril 
insured  against  in  the  policy,  or  ordinarily  insured  against  in  poli- 
cies of  insurance,  and  did  not  involve  the  safety  of  the  vessel,  or  of 
any  property  on  board;  it  had  relation  solely  to  the  success  of  the 
fishing  adventure  and  in  this  the  defendant  had  no  interest  and 
had  assumed  no  responsibilitj'.  We  are  of  opinion  that  the 
claim,  of  the  plaintiff  cannot  be  sustained;  and  that  a  necessity  to 
justify  the  departure  in  this  case  cannot  be  found  in  the  fact  that, 
without  going  to  St.  Peter's  for  bait,  the  voyage  would  have  failed 
to  be  successful  or  profitable  to  the  plaintiff.' 


4.  Seaworthiness. 

THEBAUD  V.  GREAT  WESTERN  INSURANCE  CO. 

155  N.  Y.  516.-1898. 

O'Brien,  J.  — This  was  an  action  by  the  owners  of  a  steamboat 
upon  a  policy  of  marine  insurance.  The  issues  in  the  case  were 
tried  before  a  jury,  and  the  plaintiff  recovered. 

On  the  28th  of  June,  1884,  the  steamer  Dos  Hennanos  was  in  pro- 
cess of  construction  at  the  port  of  Philadelphia  for  use  as  a  river 

'  See  also  Thebaud  v.  Ins.  Co.,  the  next  case. 


222  THE    TERMS    OF   THE    INSURANCE    CONTRACT. 

Steamer  at  or  near  Frontera,  Mexico.  She  was  not  constructed  or 
intended  for  use  upon  the  open  sea,  but  for  service  upon  the  rivers 
or  other  inland  waters  of  the  country  where  she  was  destined  for 
use.  On  the  day  mentioned,  the  defendant  issued  to  the  plaintiff 
its  policy  of  marine  insurance  upon  this  steamer  to  cover  the  voyage 
from  Philadelphia,  the  place  where  it  was  built,  to  Frontera,  Mexico, 
the  place  where  it  was  intended  for  use.  The  policy  related  only  to 
this  voyage,  part  of  which  was,  as  all  parties  knew,  upon  the  open 
sea.  The  defendant,  by  the  terms  of  the  policy,  undertook  to  pay 
to  the  plaintiffs  the  sum  of  $5,000  in  case  of  loss  upon  this  voyage, 
including  what  is  known  as  the  mechanic's  risk  while  in  port,  mean- 
ing that  at  the  time  of  the  execution  of  the  contract  the  steamer 
had  not  been  completed,  and,  in  fact,  the  voyage  did  not  commence 
until  the  27th  of  August  thereafter.  The  policy,  by  its  terms, 
indemnified  the  owners  against  loss  from  the  usual  perils  of  the  sea 
covered  by  policies  of  marine  insurance.  The  steamer,  while  on 
the  voyage,  was  lost  at  sea,  near  the  coast  of  North  Carolina,  on  the 
night  of  the  13th  of  September,  1884. 

The  defense  to  the  action  may  be  arranged  under  three  general 
heads:  (i)  That  the  steamer  was  not  seaworthy,  and,  hence,  that 
the  implied  warranty  of  seaworthiness,  which  it  is  insisted  enters 
into  and  forms  a  part  of  every  marine  insurance  upon  a  ship  or  ves- 
sel, was  broken,  and  for  that  reason  the  plaintiff  is  not  entitled  to 
recover.  (2)  That  in  making  the  voyage  there  was  a  voluntary 
deviation  from  the  usual  course  of  the  voyage  from  Philadelphia  to 
Frontera.  (3)  That  the  steamer  was  not  lost  by  the  perils  of  the 
sea,  or  by  any  casualty  covered  by  the  terms  of  the  policy,  but  in 
consequence  of  the  unseaworthiness  and  unfitness  of  the  vessel  to 
make  the  voyage  covered  by  the  contract. 

It  is  no  doubt  the  general  rule  that  in  all  contracts  of  marine 
insurance  upon  vessels  there  is  an  implied  warranty  that  the  subject 
of  the  insurance  was  at  the  time  seaworthy,  or,  in  other  words, 
reasonably  fit  and  capable  of  making  the  voyage.  But  in  this 
case  both  parties  knew  that  the  vessel  was  not  intended  for  ser- 
vice upon  the  open  sea.  She  was  not  built  or  constructed  for  any 
such  purpose,  but,  on  the  contrary,  for  the  river  service.  Before 
the  defendant  entered  into  the  contract  the  plans  and  speci- 
fications with  reference  to  the  construction  of  the  Dos  Hermanos 
had  been  submitted  to  its  agents  They  put  the  defendant  in  pos- 
session of  all  information  concerning  the  character  and  construction 
of  the  craft.  The  defendant's  marine  engineer,  who  had  had  con- 
siderable experience  assured  the  broker  who  took  the  risk  "  that 
she  was  built  for  the  river  trade,  and  he  did  not  consider  that  she 


tp:rms  of  the  marine  insurance  contract.        223 

was  just  the  thing  to  attempt  all  weathers  on  the  coast  going  around 
there,  but  if  properly  handled  she  might  get  there,  provided  she 
took  the  inland  course  so  far  as  possible."  The  defendant  there- 
upon concluded  to  write  the  risk,  but  exacted  therefor  double  the 
usual  premium  for  marine  insurance  on  ordinary  seagoing  vessels. 
The  steamer  was  not  then  completed,  and,  hence,  the  provision  in 
the  policy  covering  the  mechanic's  risk  while  in  port,  including  the 
privilege  of  mechanics  to  work  upon  the  vessel.  Before  starting 
on  her  voyage  for  Frontera  two  trial  trips  were  taken  by  direction 
of  the  engineer,  one  up  and  one  down  the  Delaware  river.  Neither 
of  these  trips,  however,  extended  beyond  the  limits  of  the  port  of 
Philadelphia,  and  we  do  not  understand  that  it  is  seriously  claimed 
that  these  trips  constituted  a  deviation  from  the  usual  voyage. 
They  were  merely  preliminary  in  order  to  test  the  capacity  of  the 
vessel  to  make  the  voyage. 

It  was  competent  for  the  jury  to  find  upon  the  evidence  that  the 
vessel  was  sufficiently  provided  with  a  crew  and  proper  equipments. 
There  is  evidence  tending  to  show  that  suitable  precautions  were 
taken  before  leaving  Philadelphia  for  the  ocean  voyage  to  make  her 
as  seaworthy  as  a  vessel  of  her  class  could  be  made;  that  her 
machinery  was  tried  and  the  boilers  inspected  in  the  usual  manner. 
The  voyage  was  commenced,  after  leaving  Philadelphia,  by  taking 
what  is  known  as  the  inside  course  through  the  canals  and  bays,  and 
the  sea  voyage  was  not  actually  commenced  until  she  reached  Fort 
Macon.  Before  reaching  that  point,  however,  it  seems  that  an 
accident  occurred  to  the  vessel  b>  a  collision  with  a  submerged 
stump  in  one  of  the  canals,  and,  hence,  there  was  a  stop  at  Balti- 
more for  repairs,  where  some  further  precautions  were  taken  in 
order  to  protect  the  steamer  from  the  perils  of  the  sea  voyage. 
Another  stop  was  made  at  Norfolk,  in  order  to  procure  a  pilot  to 
take  her  through  the  Chesapeake  and  Albemarle  canal  and  other 
waters  to  Fort  Macon.  This  was  all  inside  navigation,  and  on 
reaching  the  point  last  mentioned  it  became  necessary  to  go  outside 
upon  the  open  sea,  and  shortly  afterwards  the  steamer  was  lost. 

That  the  Dos  Hernianos  was  not  a  seaworthy  vessel,  in  the  sense 
in  which  these  terms  are  applied  to  seagoing  vessels,  is  made 
quite  clear  by  the  evidence.  It  was  undoubtedly  competent  for  the 
jury  to  so  find  and  for  the  court  below  to  so  decide,  but  in  this 
court  the  question  always  is,  upon  an  issue  of  this  character,  not 
upon  which  side  the  evidence  preponderates,  but  whether  there  is 
any  evidence  to  support  the  verdict.  The  parties  knew  perfectly 
well  that  the  subject  of  the  insurance  was  not  a  seagoing  vessel,  but, 
for  the  purposes  of  the  trip  the  defendant  was  evidently  willing  to 


224  THE    TERMS    O?^   THE    INSURANCE    CONTRACT. 

take  the  risk,  in  consideration  of  the  payment  of  a  double  premium, 
and  after  inspecting  the  vessel  and  acquiring  full  knowledge  as  to 
her  construction  and  capacity.  In  view  of  the  proof  in  the  case 
tending  to  show  what  was  done  in  order  to  fit  the  steamer  for  i  r 
voyage,  we  do  not  think  it  can  be  said  in  this  court  that  the  verdict 
of  the  jury  is  without  any  evidence  to  sustain  it.  Generally,  the 
question  as  to  whether  a  vessel,  covered  by  a  policy  of  marine 
insurance,  was,  or  was  not,  at  the  time  seaworthy,  is  one  of  fact 
for  the  jury.  Burgesx.  Wickham^  3  Best  &  Smith,  669;  Claphatn  v. 
Langston,  5  Best  cS:  Smith,  729;  Tiirnball  v.  Jansoii^  36  L.  T.  R.  635; 
Bouillon  \.  Li/pton,  15  C.  B.  (N.  S.)  113.  It  is  difficult  to  see  how 
such  a  question  from  its  very  nature  can  in  practice  be  deter- 
mined otherwise,  except,  possibly,  in  a  very  clear  case.  But  we  do 
not  regard  that  question  as  controlling,  since,  as  already  stated, 
both  parties  to  the  contract  knew  that  the  vessel  was  not  a  seagoing 
craft,  or  suitable  for  the  navigation  of  the  high  seas,  and,  under 
the  circumstances,  the  implied  warranty  upon  which  the  defendant 
relies  should  not  be  construed  in  such  a  way  as  to  be  repugnant  to 
the  general  purpose  which  the  parties  had  in  view  at  the  time  of  the 
execution  of  the  contract.  We  can  discover  no  reason  why  the  gen- 
eral rule  applicable  to  risks  in  fire  insurance  policies  does  not  apply 
to  this  case.  As  was  said  by  this  court  in  the  case  of  Bidwell  v. 
N'ortJnvestern  Ins.  Co.,  24  N.  Y.  302:  "  Indeed  it  is  not  easy  to  per- 
ceive why  an  insurance  company,  by  reason  of  the  formal  words  or 
clauses  (of  a  general  and  comprehensive  nature),  inserted  in  a  policy 
intended  to  meet  broad  classes  of  contingencies,  should  ever  be 
allowed  to  avoid  liability  on  the  ground  that  facts,  of  which  the  com- 
pany had  full  knowledge  at  the  time  of  issuing  the  policy,  were  then 
not  in  accordance  with  the  formal  words  of  the  contract,  or  some  of 
its  multifarious  conditions.  If  such  facts  are  to  be  held  a  breach 
of  such  a  clause,  they  are  a  breach  eo  instanti  of  the  making  of  the 
contract,  and  are  so  known  to  be  by  the  company  as  well  as  the 
insured.  And  to  allow  the  company  to  take  the  premium  without 
taking  the  risk  would  be  to  encourage  a  fraud."  This  rule,  which 
is  clearly  applicable  to  express  warranties  in  contracts  of  insurance, 
should,  in  reason  and  justice,  be  applicable  to  the  implied  warranty 
of  seaworthmess  in  policies  of  marine  insurance.  That  such  is  the 
well-settled  rule  in  this  court,  with  reference  to  express  warranties 
in  contracts  of  fire  insurance,  covering  conditions  with  respect  to 
which  the  underwriter  had  full  knowledge,  cannot  now  be  questioned. 
Van  Schoick  v.  N'iagara  Ins.  Co.,  68  N.  Y.  434;  Bennett  v.  Buchan,  76 
N.  Y.  386;  McNally  v.  P.  Ins.  Co,  137  N.  Y.  3S9;  Forward  v.  C. 
Ins.  Co.,  142  N.  Y.  382;  Bobbins  v.  Springfield  Ins.  Co.,  149  N.  Y.  477. 


TERMS   OF   THE    MARINE    INSURANCE    CONTRACT.  22$ 

Go  we  think  the  defendant  must  fail  in  defeating  the  recovery  on 
the  ground  that  there  was  a  breach  of  the  implied  warranty  of  sea- 
worthiness. 

Whether  the  vessel  was  unseaworthy  or  not  by  reason  of  insuffi- 
cient crew,  or  insufficient  machinery,  or  the  absence  of  a  pilot  during 
certain  parts  of  the  voyage,  was  under  the  circumstances,  a  question 
for  the  jury.  The  master  of  the  vessel  was  himself  a  competent 
navigator,  and  whether  after  reaching  Fort  Macon  and  going  into 
the  open  sea  a  pilot  was  usual  and  necessary  for  the  rest  of  the  voy- 
age, is  not  a  matter  of  law,  but  of  fact,  and  the  burden  of  proof 
showing  negligence  on  the  part  of  the  plaintiff  in  this  respect  was, 
we  think,  upon  the  defendant,     i  Phil,  on  Ins.  (5th  ed.)  §§  712,  713. 

Nor  do  we  think  it  can  be  said,  as  matter  of  law,  that  there  was 
such  a  deviation  from  the  usual  course  of  the  voyage  as  to  absolve 
the  defendant  from  the  obligations  of  the  contract.  A  deviation  is 
a  voluntary  and  inexcusable  departure  from  the  usual  course,  and 
whether  the  departure  amounts  to  a  deviation  must  be  determined 
by  the  motive,  consequences  and  circumstances  of  the  act.  Heace, 
in  its  nature  it  is  a  question  of  fact.  Where  the  circumstances  are 
such  as  to  leave  no  alternative  to  a  reasonable  and  prudent  man, 
exercising  a  sound  judgment,  and  acting  for  the  best  interests  of 
all  concerned,  it  is  not  a  deviation,  i  Arnold  on  Ins.,  §§  151,  152. 
This  proposition  covers  the  argument  in  behalf  of  the  defendant 
with  respect  to  the  inside  voyage  through  canals  and  the  stops  made 
at  the  various  points  already  referred  to.  We  have  already  intimated 
that  the  trial  trips  cannot,  in  any  just  sense,  be  considered  a  de"ia- 
tion.  Moreover,  where  a  vessel  is  insured  for  a  voyage  "  at  and 
from  "  a  port  a  reasonable  time  will  be  allowed  while  there  engaged 
in  the  business  of  preparing  for  her  voyage.  Snvde?-  v.  Ins.  Co.,  95 
N.  Y.  196;  Fernandez  x.  Ins.  Co.,  48  N.  Y.  571. 

The  subject  of  the  insurance  in  this  case  was  a  new  craft,  and  the 
trial  trips  were  reasonably  necessary  in  order  to  determine  before 
undertaking  the  voyage,  whether  the  vessel  was  suitable  for  that 
purpose.  Hence  these  trips  may  reasonably  be  regarded  as  a  part 
of  the  preparation  for  the  voyage. 

The  delay  in  commencing  the  voyage  may  also  be  imputed  to  the 
same  cause,  viz.,  the  preparation  necessary  previous  to  sailing. 
The  vessel  was  not  completed  when  insured.  The  underwriter  is 
not  discharged  by  a  delay  incurred  for  the  purposes  of  the  voyage, 
though  its  absolute  duration  be  very  considerable.  There  must  be 
a  clear  imputation  of  waste  of  time,  and  whether  the  delay  be  reason- 
able or  not  must  be  determined,  not  by  any  positive  or  arbitrary 
rule,    but  by  the   circumstances   existing  at   the   time.     Arnold  v. 

LAW  OF  INSURANCE —  1 5 


226  THE   TERMS   OF   THE    INSL' RANGE   CONTRACT, 

Pacific  Mut.  Ins.  Co.,  78  N.  \'.  16,  17.  The  defenclant  k  u,\v  the 
condition  of  the  vessel,  and  could  f^rm  a  judgment  for  itself  as  to 
the  time  when  she  would  be  ready  to  sail,  and  the  insurance  covered 
the  chances  of  dtlay.  On  all  the  facts  the  jury  had  the  right  to  find 
that  the  delay  was  not  unreasonable. 

The  subject  of  the  insurance  was  a  non-seagoing  vessel.  It  is 
reasonable  to  suppose  that  the  parties  intended  that  in  making  the 
voyage  the  open  sea  should  be  avoided  as  much  as  possible;  hence, 
what  was  called  the  inside  course  was  taken.  Considering  the 
character  of  the  steamer  and  the  purpose:  for  which  she  was  built, 
it  cannot  be  said,  as  matter  of  law,  that  avoiding  the  sea  until  l-"ort 
Macon  was  reached,  by  the  inside  course,  was  a  deviation  from  the 
usual  course  for  vessels  of  that  character.  The  ruling  of  the  trial 
court  submitting  the  question  to  the  jury  was  quite  as  favorable  to 
the  defendant  as  it  was  entitled  to.  It  was  for  the  jury  to  say 
whether,  under  all  the  circumstances,  the  delay  in  the  canal  at  night, 
the  stop  at  Baltimore  and  Norfolk,  the  delay  at  Fort  Macon  and 
the  anchoring  off  Smithville  was  a  deviation. 

The  defense  that  the  loss  was  not  from  the  perils  of  the  sea,  but 
through  inherent  weakness,  or  defects,  or  faulty  construction, 
presented  upon  the  proofs  a  question  of  fact.  On  the  part  of  the 
defendant  it  was  claimed  that  the  steamer  foundered  in  a  calm  sea; 
while  the  plaintiffs  insisted  that  she  was  lost  in  a  northeast  gale. 
The  jury  having  sustained  the  plaintiff's  contention,  we  cannot  say 
that  the  verdict  in  that  respect  is  unsupported  by  evidence.  The 
question  was  for  the  jury,  and  the  finding  is  not  open  for  review 
here.  It  appears  from  the  evidence  that  this  vessel  was  ninety  feet 
long,  twenty-two  feet  beam,  with  from  twelve  to  eighteen  inches  of 
freeboard,  flat  bottom,  drawing  aboat  three  feet  of  water.  It  is 
obvious  that  it  would  not  require  the  severest  tempest  to  sink  such 
a  craft.  The  risk  was  doubtless  an  unusal  one,  and  for  that  reason 
an  unusual  premium  was  asked  and  obtained.  It  may  be  that  the 
regular  seagoing  vessel  would  have  weathered  the  gale.  But  the 
real  question  presented  to  the  defendant,  when  the  application  for 
insurance  was  made,  was  whether  this  boat,  as  she  was  known  by 
both  parties  to  be,  could  make  the  transit  from  the  port  of  departure 
to  her  destination.  The  defendant  concluded  to  take  that  risk  in 
consideration  of  a  double  premium,  and  to  permit  it  now,  after 
receiving  the  premium,  to  defeat  a  recovery,  on  the  ground  that  she 
was  not  seaworthy  in  consequence  of  alleged  defects  of  construc- 
tion, known  to  it  at  the  time  of  taking  the  risk,  would  scarcely  be 
consistent  with  commercial  morality. 

It  seems  to  us  that  the  question   was  properly  submitted  to  the 


TERMS   OF   THE    MARINE    INSURANCE   CONTRACT.  22/ 

jury,  and  upon  a  careful  examination  of  the  exceptions  taken  during 
the  trial,  and  to  the  charge,  we  are  of  opinion  that  none  of  them 
present  any  question  of  law  that  would  warrant  us  in  disturbing  the 
verdict. 

The  judgment  should,  therefore,  be  affirmed. 

All  concur,  except  Parker,  Ch.  J.,  not  sitting. 

Judgment  affirmed. 


BROWN,  J.,  IN  BERWIND  v.  GREENWICH  INSURANCE  CO. 

114  N.  Y.  231,  234.  —  1889. 

In  every  case  of  marine  insurance  by  a  general  policy  covering 
all  the  perils  of  the  sea,  where  the  vessel  insured  is  in  port,  there 
is  an  implied  warranty  that  the  vessel  is  seaworthy  at  the  inception 
of  the  policy.  It  is  a  condition  precedent  to  the  risk,  and  if  the 
vessel  is  not  seaworthy,  the  policy  does  not  attach.  In  an  action 
to  recover  for  a  loss  upon  such  a  policy,  where  the  fact  of  sea- 
worthiness at  the  time  of  issuing  the  policy  is  shown,  it  is  immaterial 
what  the  vessel's  condition  is  thereafter  during  the  voyage,  as  loss 
from  unseaworthiness  is  among  the  perils  insured  against. 

The  plaintiffs,  under  such  a  policy,  make  out  3.  prima  facie  case  by 
showing  seaworthiness  at  the  inception  of  the  risk.  But  in  time 
policies  there  is  implied  warranty  that  the  vessel  will  be  kept  in 
repair  and  made  seaworthy  at  all  times  during  the  continuance  of 
the  risk,  so  far  as  that  is  reasonably  possible,  and  this  implied  cove- 
nant imposes  upon  the  insured  the  duty  of  active  diligence  to  keep 
the  vessel  in  good  order  and  in  a  seaworthy  condition.  2  Parsons 
on  Maritime  Law,  147,  and  cases  cited  in  note  on  page  148,  etc.  It 
is  doubtless  true  that,  under  a  general  time  policy  insuring  against 
all  perils  of  the  sea,  unseaworthiness  subsequent  to  the  attaching 
of  the  policy  is  a  defense,  the  burden  of  proving  which  is  upon  the 
defendant,  and  that  the  plaintiffs  need  offer  no  proof  thereof  as  a 
part  of  their  case,  but  in  the  policy  in  suit  loss  from  unseaworthiness 
is  among  the  excepted  risks,  and  it  was,  therefore,  incumbent  upon 
the  plaintiffs  to  show  that  the  loss  arose  from  some  of  the  perils 
covered  by  the  policy;  and  to  make  out  their  case  some  evidence 
was  necessary  from  which  the  jury  could  infer  that  the  sudden  sink- 
ing of  the  boat  was  not  due  to  defective  structure  or  condition. 


228  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

5.  Perils  Insured  Against. 

THAMES  AND    MERSEY    MARINE    INSURANCE  CO. 

(Limited)  z:  HAMILTON,  FRASER  &  CO. 

12  A.  C.  484.  —  1887. 

The  policy  sued  on  was  a  time  policy  on  the  steamship  Inchmaree^ 
for  twelve  months,  from  the  20th  of  August,  1883,  to  the  20th  of 
August,  1884;  and  the  subject-matter  of  insurance,  "  the  hull, 
masts,  spars,  sails,  boats,  materials,  and  all  stores,  valued  at 
^20,000;  and  machinery,  shafting,  propeller,  boilers,  and  connec- 
tions, including  donkey-engine  and  boilers,  pumps,  and  all  connec- 
tions, valued  at  ^11,000." 

The  risks  against  which  the  insurance  was  effected  are  thus 
described:  "  And  touching  the  adventures  and  perils  which  the 
capital  stock  and  funds  of  said  company  are  made  liable  unto  by 
this  insurance,  they  are,  of  the  seas,  men-of-war,  fire,  enemies, 
pirates,  rovers,  thieves,  jettisons,  letters  of  mart  and  countermart, 
surprisals,  takings  at  sea,  arrests,  restraints  and  detainments  of  all 
kings,  princes,  and  people  of  what  nation,  condition,  or  quality 
soever,  barratry  of  the  master  and  mariners,  and  of  all  other  perils, 
losses,  and  misfortunes  that  have  or  shall  come  to  the  hurt,  detri- 
ment, or  damage  of  the  aforesaid  subject-matter  of  this  insurance, 
or  any  part  thereof." 

On  the  2d  of  March,  1884,  the  Inchmaree  was  at  anchor  off  Dia- 
mond Island,  awaiting  orders,  and  for  the  purposes  of  the  voyage 
it  was  necessary  to  pump  up  the  main  boilers,  by  means  t;f  a  donkey- 
pump  and  engine,  in  the  usual  way.  A  pipe  led  from  the  donkey- 
pump  to  the  boilers,  and  at  its  junction  with  one  of  the  boilers  there 
was  a  check-valve,  capable  of  being  opened  or  closed  with  a  screw 
which  ought  to  have  been  kept  open  and  clear  when  the  boilers 
were  being  pumped  up.  This  valve  had  either  been  left  closed  or 
had  become  salted  up  when  the  donkey-pump  was  set  to  work  off 
Diamond  Island,  so  that  the  water  could  not  pass  into  the  boiler. 
The  consequence  was,  that  when  the  donkey-pump  was  ?et  to  work 
the  pipes  and  water  chamber  in  the  donkey-pump,  and  the  air- 
chamber  therein,  became  overcharged,  and  the  water  was  forced 
up  into  the  air  chamber,  which,  in  consequence,  split,  and  the  pump 
was  thereby  damaged. 

It  was  admitted,  for  the  purposes  of  the  case,  that  the  check  valve 
was  either  allowed  to  remain  closed  or  become  salted  up,  by  the 
negligence  of  one  of  the  engineers,  or  was  accidentally  salted  up 
without  being   noticed,  though   reasonable  care  was   taken  by   the 


TERMS    OF   THE    MARINE   INSURANCE   CONTRACT.  229 

engineers.  It  was  also  admitted  that  the  closing  or  salting  up,  and 
accident  were  not  due  to  ordinary  wear  and  tear.  The  parties  were 
unable  to  agree  as  to  whether  there  was  negligence  in  allowing  the 
check  valve  to  remain  closed,  or  to  become  salted  up;  but  as  the 
plaintiffs  contended  that  the  defendants  were  liable,  whether  there 
was  negligence  or  not,  it  was  agreed  to  leave  that  question  for  trial 
(if  material)  after  the  decision  of  the  case. 

The  questions  stated  for  the  opinion  of  the  court  were,  whether 
the  defendants  were  liable  under  the  policy  in  respect  of  the  loss, 
(i)  if  it  could  have  been  avoided  by  proper  care,  and  occurred 
through  negligence;  (2)  if  it  occurred  accidentally,  without  negli- 
gence. The  Queen's  Bench  Division  gave  judgment  for  the  plain- 
tiffs, and  this  judgment  was  affirmed  by  the  majority  of  the 
Court  of  Appeal  (Lindley  and  Lopes,  L.  JJ.);  Lord  Esher,  M.  R., 
dissenting. 

Lord  Bramwell.  —  My  Lords,  I  cannot  agree  with  the  judgment 
in  this  case.  The  donkey-engine  was  insured.  The  adventures 
and  perils  which  the  defendants  were  to  make  good,  specified  a 
great  many  particular  perils,  and  "  all  other  perils,  losses  and  mis- 
fortunes that  have  or  shall  come  to  the  hurt,  detriment  or  damage 
of  the  aforesaid  subject-matter  of  insurance,  or  any  part  thereof." 
Words  could  hardly  be  more  extensive,  and  if  the  question,  I  ought 
to  say  a  question  on  them,  arose  for  the  first  time,  I  might  perhaps 
give  them  their  natural  meaning,  and  say  they  included  this  case. 
But  the  question  does  not  arise  for  the  first  time.  It  has  arisen 
from  time  to  time  for  centuries,  and  a  limitation  has  always  been 
put  on  the  words  in  question. 

Definitions  are  most  difficult,  but  Lord  Ellenborough's  seems 
right:  "All  cases  of  marine  damage  of  the  like  kind  with  those 
specially  enumerated,  and  occasioned  by  similar  causes."  I  have 
had  given  to  me  the  following  definition  or  description  of  what 
would  be  included  in  the  general  words:  "  Every  accidental  cir- 
cumstance not  the  result  of  ordinary  wear  and  tear,  delay,  or  of  the 
act  of  the  assured,  happening  in  the  course  of  the  navigation  of  the 
ship,  and  incidental  to  the  navigation,  and  causing  loss  to  the  sub- 
ject-matter of  insurance. ' '  Probably  a  severe  criticism  might  detect 
some  faults  in  this.  There  are  few  definitions  in  which  that  could  not 
be  done.  I  think  the  definition  of  Lopes,  L.  J.,  in  Pafidorf  \.  Ham- 
ilton, 16  Q.  B.  D.  629,  633,  very  good:  "  In  a  seaworthy  ship 
damage  to  goods  caused  by  the  action  of  the  sea  during  transit  not 
attributable  to  the  fault  of  anybody,"  is  a  damage  from  a  peril  of 
the  sea.  I  have  thought  that  the  following  might  suffice:  "  All 
perils,  losses  and  misfortunes  of  a  marine  character,  or  of  a  char- 


230  THE   TERMS   OF   THE    IXSURAN'CE   CONTRACT. 

acter  incident  to  a  ship  as  such."  I  put  it  forward  with  distrust, 
but  it  would  comprehend  all  the  cases  cited  where  the  assuretl  ha? 
recovered,  save  perhaps  the  Panama  case  \^in//a].  For  example,  it 
would  include  the  case  of  the  ships  blown  over  while  in  dock,  of  the 
siii])  damaged  by  its  moorings  giving  way,  of  the  ship  fired  into  by  the 
ship.  It  would  not  include  the  cases  put  by  Lord  Esher,  nor  the 
case  I  put  of  the  captain  seized  with  giddiness  dropping  the  chrono- 
meter into  the  hold;  nor  would  it  include  the  present  case.  The 
damage  to  the  donkey  engine  was  not  through  its  being  in  a  ship  or 
at  sea.  The  same  thing  would  have  happened  had  the  boilers  and 
engines  been  on  land,  if  the  same  mismanagement  had  taken  place. 
The  sea,  waves  and  winds  had  nothing  to  do  with  it. 

As  a  matter  of  principle  and  reasoning  I  think  the.decision  wrong. 
I  think  the  judgment  in  the  JVest  India  and  Panatna  Telegraph 
Company  v.  Home  and  Colonial  Marine  Insurance  Company^  6  Q.  B.  D. 
51,  wrong  on  the  reasoning  I  have  used.  With  most  sincere  respect, 
though  it  is  true  that  w-hat  the  winds  are  to  a  sailing  vessel,  steam 
is  to  a  steamer,  that  does  not  decide  the  question,  for  it  is  not  every 
damage  to  sails  that  would  be  covered  by  the  policy.  Suppose 
damage  by  rats  or  mildew  to  spare  sails.  As  to  Lord  Esher's  judg- 
ment in  that  case,  I  concur  in  his  criticism  on  it  in  the  present  case. 
And  I  agree  with  Lopes,  L.  J.,  that  the  word  "  fire  "  in  the  policy 
will  not  sustain  that  judgment.  The  Lord  Justice  put  the  case  of 
a  spar  failing  on  the  deck,  while  getting  under  sail,  and  being 
broken,  and  says  it  would  be  within  the  policy.  Perhaps;  but  if  it 
would,  it  would  be  because  it  was  a  loss  in  navigation,  a  loss  which 
could  not  have  happened  except  on  a  ship.  But  suppose  the  spar 
was  being  used  to  erect  an  awning  on  deck  to  give  shelter  to  dancers 
or  the  like,  and  was  broken,  the  case  would  not  be  covered 
bv  the  policy.  It  would  not  be  a  marine  loss,  not  a  loss  with 
which  the  sea,  or  navigation,  or  the  ship,  as  a  ship,  had  anything 

to  do. 

I  do  not  like  cutting  down  the  natural  meaning  of  words;  there 

is  alwavs  great  difficulty  in  saying  what  should  be  substituted.  But 
it  is  admitted  that  some  limit  must  be  put  on  those  in  question  here. 
I  think  a  proper  limit  would  exclude  this  loss.  So  that  the  judg- 
ment of  the  Master  of  the  Rolls  is,  I  think,  right,  and  that  of  the 
other  judges  wrong,  and  their  decision  should  be  reversed. 

Order  appealed  from  and  the  judgment  of  the  Queen's  Bench 
Division  reversed;  cause  remitted  to  the  Queen's  Bench  Division. 

[Opinions  were  also  given  by  Lord  Halsburv,  L.  C,  Lord  Her- 
scHELL  and  Lord  Macnaghten.] 


TERMS   OF   THE    MARINE   INSURANCE   CONTRACT.  23 1 

REISCHER  V.  BORWICK. 
[1894]  2  Q.  B.  D.  (C.  A.),  548. 

The  plaintiff  was  the  owner  of  the  paddle-wheel  steam  tug  Rosa, 
which  was  insured  by  the  defendants.  The  insurance  was  expressed 
in  the  policy  to  be,  "  Only  against  the  risk  of  collision  (as  per 
clause  attached),  and  damage  received  in  collision  with  any  object, 
including  ice."  The  clause  attached  related  to  collision  with  other 
vessels;  the  policy  did  not  include  "  perils  of  the  sea." 

During  the  currency  of  the  policy,  the  Rosa  was  engaged  in  a  trip 
on  the  Danube.  In  the  course  of  her  voyage,  on  March  4,  1892, 
she  came  into  a  collision  with  a  floating  snag,  which  first  struck  the 
bottom  of  the  ship,  and  then  fouled  the  port  paddle-wheel  and 
caused  considerable  damage  to  the  machinery  of  the  ship.  Among 
other  things,  the  cover  of  the  condenser  ^vas  broken,  and  a  hole 
made  in  it  about  twenty  square  inches  in  area.  The  water  poured 
in  through  the  ejection  pipes  into  the  condenser,  and  thence  through 
the  hole  in  the  cover  into  the  ship.  The  captain  anchored  the  ship, 
and  set  the  pumps  to  work.  He  also  succeeded  in  plugging  the 
ejection  pipes  with  wooden  plugs;  and  so  long  as  the  ship  was  at 
anchor  the  water  was  thus  prevented  from  entering  the  vessel  to  any 
dangerous  e.Ktent.  The  captain  then  applied  for  assistance,  and  on 
March  6,  a  tug  was  sent  to  tow  the  Rosa  to  the  nearest  dock  for 
repairs.  The  tug  commenced  to  tow  the  Rosa  on  the  same  evening; 
but  on  the  morning  of  March  7,  while  she  was  being  towed,  the 
water  poured  in  rapidly  through  the  hole  in  the  cover  of  the  con- 
denser, and  it  was  found  that  the  plug  in  the  port  ejection  pipe  had 
fallen  out  and  the  ship  was  in  danger  of  sinking.  The  towing  was 
stopped,  but  the  captain  was  unable  to  stay  the  rush  of  water  through 
the  ejection  pipe,  and,  in  order  to  save  the  lives  of  the  crew,  gave 
orders  to  the  tug  to  tow  the  Rosa  ashore.  This  was  done,  and  she 
was  grounded  on  the  south  bank  of  the  river,  where  she  was  aban- 
doned by  the  plaintiff. 

The  plaintiff  claimed  damages  for  the  total  loss  of  the  vessel. 
The  defendants  paid  into  court  37/.  lo^-.  to  cover  the  damage  caused 
by  the  collision  with  the  snag  up  to  the  time  when  the  vessel  was 
taken  in  tow  by  the  tug,  but  denied  any  liabilitv  for  the  subsequent 
damage,  contending  that  the  proximate  cause  of  that  damage  was 
not  the  collision,  but  the  towing  to  the  port  of  repair.  Kennedy,  J., 
who  tried  the  action  without  a  jury,  gave  judgment  for  the  whole 
amount  claimed,  and  the  defendants  appealed. 

Davey,  L.  J.  —  In  this  case  the  appellant?  admit  that  damage 
done  by  water  coming  through  a  hole  caused  by  a  collision  with  any 


232  THE   TERMS   OF   THE    INSURANXE   CONTRACT. 

object  is  damage  against  which  the  assurers  are  bound  to  indemnify 
the  assured.  What  is  the  causa proxiina  of  the  damage  sustained  in 
this  Cise?  The  only  answer  seems  to  me  to  be  the  inrush  of  water 
through  the  hole  in  the  condenser.  What  made  the  hole  in  the 
condenser?  The  collision  made  the  hole  in  the  condenser,  and  the 
broken  condenser  was  a  continuing  source  of  risk  and  danger.  The 
failure  of  the  attempt  to  mitigate  or  stop  the  damage  arising  from 
the  breach  in  the  condenser  cannot  in  my  opinion  be  justly  described 
as  the  cause  of  the  ultimate  damage.  1  therefore  agree  in  the 
judgment  which  has  been  given. 

Appeal  dismissed.' 
[Opinions  were  also  given  by  Lindley  and  Lopes,  L.  JJ.] 


6.   General  Average. 

THE  MERCHANTS'  AND  MINERS'  TRANSPORTATION 
COMPANY  OF  BALTIMORE  v.  THE  ASSOCIATED  FIRE- 
MEN'S INSURANCE.  COMPANY  OF  BALTIMORE. 

53  Md.  448.  —  1B79. 

RoBixsoN,  J.  — This  suit  is  brought  by  the  appellant,  owner  of 
the  steamer  George  Appo/d,  on  a  Jirc  policy  issued  by  the  appel- 
lee, insuring  said  steamer  against  loss  by  fire. 

It  appears  that  on  the  20th  of  October,  1877,  while  loading  at  the 
port  of  Savannah,  a  fire  was  discovered  among  a  cargo  of  cotton 
stowed  in  the  forehold  of  the  steamer,  and  in  order  to  save  both  the 
steamer  and  cargo  from  destruction,  it  was  found  necessary  to  sub- 
merge the  vessel.  The  damages  direct  and  indirect  to  the  steamer 
itself,  were  estimated  at  $2,500,  and  the  damages  to  the  cargo  at 
$10,500.  The  adjuster  to  whom  the  matter  was  referred  decided 
that  the  damagesto  the  cargo  were,  according  to  the  usage  and  laws 
of  the  port  of  Baltimore,  subject  to  the  law  oi  general  average;  and 
the  appellant,  as  owner  of  the  steamer,  was  obliged  to  contribute  to 
the  cargo  the  sum  of  $5,231.29.  The  steamer  was  insured  by  the 
appellee  and  other  ^;r  companies^  to  the  amount  of  $80,000;  and  the 
cargo  was  insured  under  marine  policies.  The  fire  companies  tender 
themselves  ready  to  pay  $2,500,  the  amount  of  damage  sustained 
by  the  steamer,  but  the  appellant  claims  that  in  addition  to  this  sum, 
he  is  entitled  to  recover  the  amount  paid  by  him  under  the  law  of 

'  See  also  the  exhaustive  opinion  as  to  proximate  cause,  in  Brown  v.  Ins.  Co., 
61  N.  Y.  332. 


TERMS   OF   THE   MARINE   INSURANCE   CONTRACT.  233 

general  average  to  the  cargo.  And  this  is  the  cjuestion,  and  the 
sole  question,  at  issue  between  the  parties. 

^Vere  this  a  question  to  be  determined  purely  upon  equitable  prin- 
ciples, there  might  be  some  ground  to  support  the  appellant's  con- 
tention. The  steamer  was  fully  insured  by  the  fire  companies,  and 
in  the  event  of  its  destruction  by  fire,  they  would  have  been  liable 
for  the  entire  loss  sustained  by  the  appellant.  In  that  event,  instead 
of  the  sum  of  $5,231.29  now  claimed  by  the  appellant,  they  would  have 
been  obliged  to  pay  the  entire  amount  covered  by  their  respective 
policies.  If  the  steamer  was  saved  from  destruction  by  being  sub- 
merged, and  the  appellant,  as  owner,  was,  in  consequence  thereof, 
obliged  to  pay  $5,000  for  damages  to  the  cargo,  it  would  seem  but 
fair  and  equitable  that  he  should  be  reimbursed  a  loss  thus  incurred 
for  the  benefit  and  protection  of  the  insurers. 

The  liability,  however,  of  the  insurer  is  one  arising  upon  contract, 
and  must  be  determined  by  the  terms  of  the  policy  upon  which  this 
suit  is  brought.  It  is  hardly  necessary  to  say,  that  a  policy  of 
insurance  like  any  other  contract,  must  be  construed  according  to 
the  evident  intention  of  the  parties,  to  be  gathered  from  the  lan- 
guage used,  taken  in  connection  with  the  subject-matter  to  which  it 
refers.  The  rights  and  obligations  of  the  parties  to  this  suit  must, 
therefore,  be  determined  by  the  contract  as  made  between  them ;  and 
we  have  no  power  to  add  new  conditions  or  to  extend  the  risk 
beyond  what  is  fairly  within  the  terms  of  the  policy  itself.  Now 
what  are  the  terms  of  this  policy?  Looking  at  the  face  of  it,  we  find 
the  thing  insured  is  a  steamer,  and  the/.?;-// insured  against  is  loss  by 
fire.  No  other  risk  was  assumed  by  the  insurer,  and  indemnity 
against  loss  from  this  peril  and  this  alone  was  the  consideration  for 
which  the  premium  was  paid  by  the  insured.  Here  then  is  a  contract 
in  regard  to  d,  specific  subject  di^^  made  for  a  specific  purpose,  and  by  it  the 
correlative  rights  and  obligations  of  the  parties  must  be  determined. 

It  is  not  contended  that  the  appellee  has  in  express  terms  agreed 
to  reimburse  the  appellant  for  losses  which  as  owner  he  might  be 
obliged  to  contribute  to  the  cargo,  but  the  argument  is,  that  the 
msurer  is  liable  for  all  damages  resulting  directly  from  the  peril 
insured  against,  and  that  actual  combustion  is  not  always  the  test  by 
which  such  damages  are  to  be  ascertained.  This  in  a  certain  sense 
is  true.  The  insurer  of  a  stock  of  goods  may  be  liable  for  damages 
caused  by  water,  although  the  water  was  used  to  extinguish  a  fire 
upon  the  house  in  which  the  goods  are  stored.  And  upon  the  same 
principle  it  has  been  held,  that  the  insurer  of  a  house  is  liable  for 
its  destruction,  when  such  destruction  was  absolutely  necessary  to 
arrest  the  progress  of  a  fire  in  a  city.     City  Fire  Ins.  Co.  v.   Corlies^ 


234  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

2  1  Wendell,  367;  Wcthcrall  \.  Marine  Ins.  Co.,  49  Me.  200;  Geisekv. 
Crescent  Afiitual  Ins.  Co.,  19  La.  An.  297;  Hillicr  v.  Allegheny  Co. 
Mill.  Ins.  Co.,  3  Peiiii.  470;  T/iompson  v.  Montreal  Ins.  Co.,  6  U.  C, 
Q.  B.  319.  Ill  these  and  other  like  cases,  the  law  presumes,  that 
the  parties  from  the  very  nature  of  things,  must  have  contem- 
plated the  natural  and  physical  consequences  resulting  from  the 
peril  insured  against.  So,  in  this  case,  the  appellee  is  not  only  liable 
for  the  damages  to  the  ship  from  actual  combustion,  but  also  for 
damages  to  the  vessel  resulting  directly  from  the  means  used  to 
extinguish  the  fire.  But  the  liability  of  the  insurer  arising  in  cases 
where  the  peril  insured  against  has  been  the  pro.ximate  cause  of  the 
loss,  has  never  been  held  to  cover  damages  to  other  property  not 
insured  by  the  policy. 

If,  then,  the  appellant  is  entitled  to  recover  in  this  suit,  it  must 
be  upon  the  ground,  that  the  lani  0/ general  ai'erage,  by  which  he  was 
obliged  to  contribute  to  the  loss  sustained  by  the  cargo,  constitutes 
and  forms  a  part  of  the  risk  assumed  by  the  appellee.  Fire  policies, 
it  is  well  known,  have  been  in  existence  for  centuries,  and  it  is  but 
fair  to  presume  that  cases  like  the  present,  where  the  vessel  has  been 
insured  by  such  policies,  and  the  cargo  insured  nndtv  marine  policies, 
must  have  frequently  occurred;  and  yet  no  case  has  been  found,  in 
which  it  has  been  held,  that  the  fire  policy  must  contribute  to  the 
loss  sustained  by  the  cargo.  Not  only  this,  but  the  proof  in  the 
record  shows,  that  the  usage  and  laws  recognized  by  mercantile  men, 
and  by  which  such  policies  are  construed,  are  all  against  this  con- 
tention. In  determining  for  the  first  time  a  question  arising  upon 
insurance,  such  usage  and  laws  are  entitled  to  weight,  not  only 
because  they  are  approved  and  sanctioned  by  practical  and  sagacious 
men,  in  regard  to  a  subject-matter,  in  which  they  are  alike  interested, 
but  also  because  the  parties  must  be  presumed  to  have  contracted 
with  reference  to  them.  In  fact  it  has  been  said,  that  the  whole 
law  of  insurance  has  done  little  else,  than  to  adopt  such  laws  and 
usages,  and  to  give  to  them  the  force  of  authority. 

In  the  absence  then  of  any  authority  to  support  the  appellant's 
contention,  let  us  see  whether  it  can  be  supported  on  principle. 
The  whole  scope  and  object  and  purposes  of  d.  fire  policy,  are  different 
from  those  of  a  marine  policy.  By  the  former,  the  insurer  agrees 
to  indemnify  against  loss  by  fire.  That  is  the  only  peril  for  the  loss 
by  which  he  agrees  to  become  responsible;  and  we  have  no  right  to 
enlarge  the  contract,  or  to  extend  the  risk  by  implication.  By  a 
marine  policy,  the  underwriter  engages  to  pay  not  only  the  loss  or 
damage  to  the  thing  insured,  but  also  to  reimburse  the  owner  all 
sums  paid  by  him  under  the  laws  of  general  average. 


TERMS   OF  THE    MARINE    INSURANCE   CONTRACT.  235 

General  average  is  a  contribution  by  all  the  parties  in  a  sea 
adventure^  to  a  loss  suffered  for  the  common  benefit  of  all.  In  such 
cases,  where  any  sacrifice  is  deliberately  and  voluntarily  made,  or 
any  expense  is  fairly  and  bona  fide  Xwcw^x^A^  to  prevent  total  los^, 
or  some  greater  disaster,  it  is  but  just  and  right,  that  the  sac- 
rifice or  expense  should  be  borne  relatively  by  the  owner  of  the  ship, 
freight  and  cargo,  to  the  end,  that  the  loss  may  fall  equally  upon  all 
the  parties  in  interest.  Birkley  \.  Fresgrave,  i  East,  228;  Hallett 
V.  Wigrajn,  9  C.  B.  580;  Fletcher  v.  Alexander^  37  L.  J.  (C.  P.)  196. 
L.  R.,  3  C.  P.  380.  For  risks  thus  assumed,  and  which  may  be 
said  to  be  coextensive  with  the  perils  of  the  sea  —  embracing  general 
average,  salvage  and  abandonment,  the  insured  pays  a  premium 
more  than  five  times  greater  than  the  premium  against  loss  by  fire 
alone.  If  the  appellant  desired  protection  against  the  risk  of  gen- 
eral average,  or  against  other  perils  of  the  sea,  he  should  have  insured 
under  a  marine  policy.  If  he  preferred  to  insure  at  a  lower  rate  of 
premium,  and  to  take  upon  himself  all  risks,  other  than  loss  by  fire, 
he  has  no  reason  to  complain,  because  the  insurer  refuses  to  reim- 
burse him  for  a  loss  not  covered  by  the  policy;  and  which  by  the 
well-settled  law  of  insurance  constituted  no  part  of  the  contract 
between  the  parties. 

In  the  many  cases  relied  on  by  the  counsel  for  the  appellant,  the 
questions  considered  and  decided  arose  on  marine  policies,  under 
which  the  rights  and  obligations  of  the  parties  are  altogether 
different  from  those  belonging  and  incident  to  a  fire  policy.  The 
policy  sued  on  in  this  case  limits  the  liability  of  the  appellee  to 
losses  to  the  steamer  itself  by  fire,  and  upon  such  a  policy,  the  appel- 
lant is  not  entitled  either  upon  principle  or  upon  authority  to  recover 
the  amount  which  under  the  law  of  general  average,  he  was  obliged 
as  owner  of  the  vessel  to  contribute  to  the  cargo,  even  though  the 
damages  to  the  cargo  were  occasioned  by  the  means  used  to  extin- 
guish the  fire  in  the  vessel. 

The  statement  of  facts  shows,  that  the  damages  direct  and  indirect 
to  the  steamer  were  $2,500,  and  this  sum  the  appellee  tenders  itself 
ready  to  pay.  There  was  no  error  therefore  in  refusing  to  grant 
the  appellant's  prayers,  and  the  judgment  must  be  affirmed. 

Judgment  affirmed. 


236  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

7.    Total  Loss  and  AuANUoNMtNT. 

BRADLIE  ET  AL  V.  MARYLAND  INSURANCE  CO. 

12  Pet.  378.  —  1833. 

Mr.  Justice  Story  delivered  the  opinion  of  the  court: 
This  cause  comes  before  the  court  upon  a  writ  of  error  to  the 
Circuit  Court  of  Maryland  District.  The  original  action  was  upon 
a  policy  of  insurance  dated  the  22d  of  Novt-mber,  1832,  whereby  the 
defendants,  The  Maryland  Insurance  Company,  caused  the  plaintiffs 
by  their  agents,  William  Howell  &  Son,  to  be  insured,  lost  or  not 
lost,  ten  thousand  dollars,  at  a  premium  of  four  per  cent.,  on  the 
brig  Gracchus,  Snow,  master  (valued  at  that  sum),  at  and  from 
Baltimore,  for  six  calendar  months,  commencing  that  day  at  noon; 
and  if  she  be  on  a  passage  at  the  expiration  of  that  time,  the  risk  to 
continue  at  the  same  rate  of  premium,  until  her  arrival  at  the  port 
of  destination  The  declaration  alleged  a  total  loss  by  the  casting 
ashore  and  stranding  of  the  brig  on  the  23d  of  March,  1833,  in  the 
rivet  Mississippi.  Upon  the  trial  of  the  cause  it  appeared  in  evi- 
dence that  the  brig  sailed  from  Baltimore  on  a  voyage  to  New 
Orleans,  and  safely  arrived  there;  and  took  on  board  part  of  her 
cargo  (pork  and  sugar)  at  that  port  on  a  voyage  for  Baltimore;  and 
about  the  middle  of  the  23d  day  of  March,  1833,  sailed  from  New 
Orleans,  intending  to  proceed  to  Sheppard's  plantation,  on  the  river 
Mississippi,  about  thirty-three  miles  below  New  Orleans,  to  take  in 
the  residue  of  her  cargo  for  the  same  voyage.  At  the  English  Turn, 
about  twenty-two  miles  from  New  Orleans,  the  brig  attempted  to 
come  to  anchor,  and  in  so  doing  lost  the  small  bower  anchor;  and 
then  dropped  the  best  bower  anchor,  which  brought  her  up.  The 
next  morning,  while  the  brig  w  :,  proceeding  on  her  voyage,  she 
struck  on  a  log,  broke  the  rudder  pintles,  when  she  fell  off  and 
went  on  shore.  A  signal  was  then  made  for  a  steamboat  in  sight, 
which  came  to  the  assistance  of  the  brig,  and  in  attempting  to 
haul  her  off  the  hawser  parted.  It  was  then  found  that  the  brig 
was  making  water  very  fast.  Help  was  obtained  from  a  neighbor- 
ing plantation  They  commenced  pumping  and  discharging  the 
cargo  on  board  of  the  steamboat;  and  after  discharging  all  the  pork 
and  part  of  the  sugar,  they  succeeded  in  freeing  the  ship  on  the 
afternoon  of  the  same  day.  She  was  then  got  off  and  proceeded  to 
New  Orleans,  where  she  arrived  the  same  night,  she  continuing  to 
leak,  and  both  pumps  being  kept  going  all  the  time.  The  next 
day  the  master  understood  that  the  steamboat  claimed  a  salvage  of 
fifty  per  cent.,  and  intended  to  libel  for  it.  On  the  27th  of  the 
same  month  the  brig  was  taken  across  the  river  for  repairs.     On 


TERMS   OF   THE   MARINE   INSURANCE   CONTRACT.  237 

the  same  day  the  brig  was  libelled  for  salvage  in  the  District  Court 
of  Louisiana. 

On  the  25th  of  March,  Snow,  the  master,  wrote  a  letter  to  one  of 
the  owners  containing  an  account  of  the  loss  and  state  of  the  brig, 
and  also  of  the  claim  by  the  salvors  of  fifty  per  cent.,  which  the 
underwriters  on  the  cargo  and  himself  had  objected  to,  adding  that 
they  should  hold  the  steamboat  liable  for  any  damage  that  might  be 
incurred  on  account  of  the  detention. 

On  the  22d  of  April,  Messrs.  Howell  &  Sons  addressed  a  letter  to 
the  company,  submitting  the  letter  of  the  25th  of  March  to  the 
company  and  say  therein:  "In  consequence  of  the  damage, 
together  with  the  detention  that  must  grow  out  of  a  lawsuit  (in 
which  it  appears  that  the  vessel  is  involved),  the  voyage  being 
broken  up;  we  do  hereby  abandon  to  you  the  brig  Gracchus,  as 
insured  in  your  office,  per  policy  No.  13,703,  and  claim  for  a  total 
loss."  On  the  same  day  the  company  returned  an  answer,  saying: 
"  We  cannot  accept  the  abandonment  tendered  in  your  letter  of  this 
date;  but  expect  you  to  do  what  is  necessary  in  the  case,  for  the 
safety  and  relief  of  the  vessel."     *     *     * 

The  instructions  of  the  court  actually  given  in  these  prayers 
involve  the  following  propositions:  i  That  if  the  expenditures  in 
repairing  the  damage  exceeded  half  the  value  of  the  brig  at  the  port 
of  New  Orleans,  after  such  repairs  were  made,  including  therein  the 
salvage  awarded  to  the  salvors,  the  plaintiffs  were  entitled  to  recover 
for  a  total  loss  under  the  abandonment  made  on  the  22d  of  April, 
1833.     *     *     * 

In  considering  the  first  it  is  material  to  remark  that  by  the  well- 
settled  principles  of  our  law,  the  state  of  the  facts,  and  not  the  state 
of  the  information  at  the  time  of  the  abandonment,  constitutes  the 
true  criterion,  by  which  we  are  to  ascertain  whether  a  total  loss  has 
occurred  or  not,  for  which  an  abandonment  can  be  made.  If  the 
abandonment,  when  made,  is  good,  the  rights  of  the  parties  are 
definitely  fixed;  and  do  not  become  changed  by  any  subsequent 
events.  If,  on  the  other  hand,  the  abandonment,  when  made,  is  not 
good,  subsequent  circumstances  will  not  affect  it  so  as,  retro- 
actively, to  impart  to  it  a  validity  which  it  had  not  at  its  origin.  In 
some  respects  our  law  on  this  point  differs  from  that  of  England; 
for,  by  the  latter,  the  right  to  a  total  loss,  vested  by  an  abandon- 
ment, may  be  divested  by  subsequent  events,  which  change  that 
total  loss  into  a  partial  loss.  It  is  unnecessary  to  cite  cases  on  this 
subject,  as  the  diversity  is  well  known;  and  the  courts  in  neither 
country  have  shown  any  disposition  of  late  years  to  recede  from 
their    own  doctrine.     The    cases    of    Rhinelander  v.   The  Insurance 


238  THE   TERMS   OK    THE    INSURANCE   CONTRACT. 

Companv  of  Pennsylvania,  4  Cranch,  29,  and  Marshall  w  The  Dela- 
7i>are  Insurance  Company,  4  Cranch,  202,  are  direct  affirmations  of 
our  rule;  and  those  of  Bainbridge  v.  Neilson,  10  East's  Rep.  329; 
Patterson  v.  Ritchie,  4  M.  &  Selw.  394,  and  M ' Peer  v.  Henderson,  4 
M.  (S:  Selw    584,  of  the  English  rule. 

1 1  cases  where  the  abandonment  is  founded  upon  a  supposed 
technical  loss,  by  a  damage  or  injury  exceeding  one-half  the  value 
of  the  vessel,  although  the  fact  of  such  damage  or  injury  must 
exist  at  the  time,  yet  it  is  necessarily  open  to  proofs,  to  be  derived 
from  subsequent  events.  Thus,  for  example,  if  the  repairs,  when 
subsequently  made,  clearly  exceed  the  half  value,  it  is  plain  that 
this  affords  one  of  the  best  proofs  of  the  actual  damage  or  injury. 
On  the  other  hand,  if  the  subsequent  repairs  are  far  below  the  half 
valuf^;  this,  so  far  as  it  goes,  affords  an  inference  the  other  way. 
But  it  is  not,  and  in  many  cases  cannot  be  decisive  of  the  right  to 
abandon.  In  many  cases  of  stranding  the  state  of  the  vessel  at  the 
time  may  be  such,  from  the  imminency  of  the  peril  and  the  apparent 
extent  of  expenditures  required  to  deliver  her  from  it,  as  to  justify 
an  abandonment;  although,  by  some  fortunate  occurrence,  she  may 
be  delivered  from  her  peril  without  an  actual  expenditure  of  one- 
half  of  her  value  after  she  is  in  safety.  Under  such  circumstances, 
if,  in  all  human  probability,  the  expenditures  which  must  be  incurred 
to  deliver  her  from  peril  are,  at  the  .ime,  so  far  as  any  reasonable 
calculations  can  be  made,  in  the  highest  degree  of  probability, 
beyond  hdlf  value;  and  if  her  distress  and  peril  be  such  as  would 
induce  a  considerate  owner,  uninsured  and  upon  the  spot,  to  withhold 
any  attempt  to  get  the  vessel  off  because  of  such  apparently  great 
expenditures,  the  abandonment  would  doubtless  be  good.  It  was 
to  such  a  case  that  Lord  Ellenborough  alluded  in  Anderson  v. 
Wallis,  2  M.  &  Selw.,  when  he  said:  "There  is  not  any  case  nor 
principle  which  authorizes  an  abandonment,  unless  where  the  loss 
has  been  actually  a  total  loss  or  in  the  highest  degree  probable  at 
the  time  of  the  abandonment."  Mr.  Chancellor  Kent,  in  his  learned 
Commentaries  (vol.  3,  321),  has  laid  down  the  true  results  of  the 
doctrine  of  law  on  this  subject.  "  The  right  of  abandonment  (says 
he)  does  not  depend  upon  the  certainty,  but  upon  the  high  proba- 
bility of  a  total  loss,  either  of  the  property,  or  of  the  voyage,  or 
both.  The  insured  is  to  act,  not  upon  certainties,  but  upon  proba- 
bilities; and  if  the  facts  present  a  case  of  extreme  hazard  and  of 
probable  expense,  exceeding  half  the  value  of  the  ship,  the  insured 
may  abandon;  though  it  should  happen  that  she  was  afterwards 
recovered  at  a  less  expense."  We  have  no  difficulty,  therefore,  in 
acceding  to  the  argument  of  the  counsel  for  the  plaintiffs  in  error  on. 


TERMS    OF  THE    MARINE   INSURANCE   CONTRACT.  239 

this  point.  •  But  its  application  to  the  ruling  of  the  court  will  be  con- 
sidered hereafter. 

In  respect  to  the  mode  of  ascertaining  the  value  of  the  ship,  and, 
of  course,  whether  she  is  injured  to  the  amount  of  half  her  value,  it 
has,  upon  the  fullest  consideration,  been  held  by  this  court  that  the 
true  basis  of  the  valuation  is  the  value  of  the  ship  at  the  time  of  the 
disaster;  and  that,  if  after  the  damage  is  or.  might  be  repaired,  the  ship 
is  not,  or  would  not  be  worth,  at  the  place  of  the  repairs,  double  the 
cost  of  the  repairs,  it  is  to  be  treated  as  a  technical  total  loss.  This 
was  the  doctrine  asserted  in  the  Patapsco  Insurance  Co.  v.  Southgate, 
5  Peters,  604;  in  which  the  court  below  had  instructed  the  jury  that 
if  the  vessel  could  not  have  been  repaired  without  an  expenditure 
exceeding  half  her  value  at  the  port  of  the  repairs,  after  the  repairs 
were  made,  it  constituted  a  total  loss.  This  court  held  that  instruc- 
tion to  be  entirely  correct.  It  follows,  from  this  doctrine,  that  the 
valuation  of  the  vessel  in  the  policy,  or  the  value  at  the  home  port, 
or  in  the  general  market  of  other  ports,  constitutes  no  ingredient  in 
ascertaining  whether  the  injury  by  the  disaster  is  more  than  one-half 
the  value  of  the  vessel  or  not.  For  the  like  reason,  the  ordinary 
deduction,  in  cases  of  a  partial  loss,  of  one-third  new  for  old  from 
the  repairs  is  equally  inapplicable  to  cases  of  a  technical  total  loss  by 
an  injury  exceeding  one-half  of  the  value  of  the  vessel.  That  rule 
supposes  the  vessel  to  be  repaired  and  returned  to  the  owner,  who 
receives  a  corresf)ondent  benefit  from  the  repairs  beyond  his  loss  to 
the  amount  of  one-third.  But  in  the  case  of  a  total  loss  the  owner 
receives  no  such  benefit;  the  vessel  never  returns  to  him,  but  is 
transferred  to  the  underwriters.  If  the  actual  cost  of  the  repairs 
exceeds  one-half  of  her  value  after  the  repairs  are  made,  then  the 
case  falls  directly  within  the  predicament  of  the  doctrine  asserted 
in  the  case  of  5  Peters,  604.  The  same  limitations  of  the  rule,  and 
the  reasons  of  it,  are  very  accurately  laid  down  by  Mr.  Chancellor 
Kent  in  his  Commentaries  (3  vol.  330),  and  in  Da  Costa  v.  Newn- 
ham^  2  Term  Rep.  407. 

If  with  these  principles  in  view  we  examine  the  first  instruction 
given  in  th;s  case  in  the  Circuit  Court,  it  will  be  found  to  be  per- 
fectly correct.  Indeed,  that  part  of  the  instruction  which  declares 
that  if  the  brig  "could  not  be  got  off  and  repaired  without  an 
expenditure  of  money  to  an  amount  exceeding  half  her  value  at  the 
port  of  New  Orleans,  after  such  repairs  were  made,  then  the  plain- 
tiffs are  entitled  to  recover  for  a  total  loss  under  the  abandonment," 
is  [)recisely  in  the  terms  of  the  instruction  given  in  The  Patapsco 
Insurance  Company  v.  Southgate,  5  Peters,  604.  The  error,  which 
has   been  insisted  on  at  the  argument  by  the   plaintiffs,  is  in   the 


240  THE   TERMS   OF   THE   INSURANCE    CONTRACT. 

additional  direction;  that  "in  ascertaining  the  amount  of  such 
expenditure  the  jury  must  include  the  sum  for  which  the  brig  was 
liable  to  the  salvors  according  to  the  decree  of  the  District  Court  of 
Louisiana  stated  in  the  evidence;  "  which,  it  is  contended,  removed 
from  the  consideration  of  the  jury  the  right  to  take  into  the  account 
the  high  probability,  at  the  time  of  the  abandonment,  of  the  allow- 
ance of  a  greater  salvage,  and  even  to  the  extent  of  the  fifty  per  cent. 
then  claimed  by  the  salvors.  And  in  support  of  the  argument  it  is 
insisted  that  the  state  of  the  facts  and  the  high  probabilities  at  the 
time  of  the  abandonment  constitute  the  governing  rule,  and  not  the 
ultimate  result  in  the  subsequent  events.  But  it  appears  to  us  that 
the  argument  is  founded  upon  a  total  misunderstanding  of  the  true 
import  of  this  part  of  the  instruction.  The  court  did  not  undertake 
to  say,  and  did  not  say,  that  the  jury  might  not  properly  take  into 
consideration  the  high  probability  of  a  larger  salvage  at  the  time  of 
the  abandonment,  but  simply  that  the  jury  must  include  in  the  hall 
value  the  amount  of  the  actual  salvage  decreed,  because  that  was, 
in  truth,  a  part  of  the  loss.  The  instruction  was,  therefore,  not  a 
limitation  restrictive  of  the  rights  and  claims  of  the  plaintiffs,  but 
in  fact  a  direction  in  favor  of  their  rights  and  claims  and  in  support 
of  the  abandonment.  This  is  demonstrated  by  the  then  actual 
position  of  the  cause.  The  defendants  have  asked  an  instruction 
that  the  costs  of  tlie  repairs  only,  exclusive  of  the  salvage,  should 
be  taken  mto  consideration  in  estimating  the  half  value,  and  also 
that  the  one-third  new  for  old  should  be  deducted  from  the  amount 
of  the  cost  in  estimating  the  half  value.  The  court  in  effect  nega- 
tived both  instructions;  and  in  the  particulars  now  objected  to  there 
was  a  positive  direction  to  the  jury  not  to  exclude  but  to  include  the 
salvage  in  the  estimate  of  the  loss.  In  this  view  of  the  matter  the 
instruction  was  most  favorable  to  the  plaintiffs,  and  so  far  from 
excluding  evidence-  which  might  show  the  amount  of  the  actual 
damage  at  the  time  of  the  abandonment,  it  resorted,  and  very  prop- 
erly resorted,  to  the  subsequent  ascertainment  of  salvage  as  positive 
e\idence  that  to  that  extent  at  least  the  actual  damage  was  enhanced 
beyond  the  cost  of  the  repairs.  We  are  entirely  satisfied  with  this 
part  of  the  instruction  in  this  view,  which  seems  to  us  to  be  the  true 
interpretation  of  it.     *     *     *  ' 

'  In  the  Sailing  Ship  '"Blairinore"  Co.  v.  Macredie,  [1898]  A.  C.  593,  the  ship 
was  struck  by  a  squall  and  sunk.  The  English  rule  as  to  constructive  total  loss 
is  thus  stated  (p.  612):  "  The  test  of  whether  a  constructive  total  loss  has  or 
has  not  occurred  is  to  be  found  in  the  answer  to  be  given  to  the  question.  What 
would  a  prudent  owner  do  if  not  insured?  If  such  an  owner  having  regard  to 
all  ihe  circumstances,  would  abandon  his  vessel  and  would  not  attempt  to  raise 


TERMS   OF   THE    MiVRINE   INSURANCE   CONTRACT.  24I 

8.   Particular  Average  and  the  Memorandum  Clause, 

INSURANCE  COMPANY  v.  FOGARTY. 
19  Wall.  640.  —  1873. 

Error  to  the  Circuit  Court  for  the  Southern  District  of  New  York. 

Fogarty  sued  the  Great  Western  Insurance  Company  on  a  policy 
of  marine  insurance  and  recovered  a  judgment  for  $2,611.95  and 
costs.  The  policy  was  an  open  one,  and  the  indorsement  procured 
by  the  plaintiff  on  it  was  of  insurance  for  $2,250  on  machinery  on 
board  the  bark  Ella  Adele,  at  and  from  New  York  to  Havana,  free 
from  particular  average.  The  memorandum  clause  of  the  policy 
provided  that  machines  and  machinery  of  every  description  were 
warranted  by  the  assured  free  from  average  unless  general.  The 
machinery  insured  consisted  of  the  various  parts  necessary  for  a 
complete  sugar-packing  machine,  including  as  part  of  it  three  sets 
of  truck  irons  and  also  other  extra  truck  irons.  It  was  described  in 
the  bill  of  lading  and  invoice  as  eight  pieces  and  eight  boxes,  com- 
posing one  sugar-packer  and  three  trucks. 

The  vessel  on  which  these  articles  were  being  transported  from 
New  York  to  Havana,  just  before  reaching  the  latter  city,  was  driven 
on  rocks  in  a  violent  gale,  was  filled  with  water,  and  finally  became 
a  total  wreck,  and  was  abandoned  to  the  underwriters.  Their 
agent  at  Havana  took  possession,  and  was  engaged  about  a  month 
in  raising  the  cargo.  A  large  number  of  the  pieces  composing  the 
plaintiff's  machinery  was  recovered  and  tendered  to  him  at  Havana, 
which  he  refused  to  receive  on  the  ground  that  the  insurance  com- 
pany was  liable  to  hi-n  as  for  a  total  loss.  They  denied  that  under 
the  circumstances  of  the  case  there  was  a  total  loss  within  the  mean- 
ing of  the  policy,  and  the  soundness  of  the  instruction  to  the  jury 

and  repair  her,  because  the  cost  of  doing  so  would  exceed  her  value  when  thus 
restored  to  hei  former  condition,  a  constructive  total  loss  has  been  incurred." 
At  p.  6ro  the  English  rule  as  to  when  the  rights  of  the  parties  are  fixed  by  an 
abandonment  is  stated  to  be  "  that  if  in  the  interval  between  the  notice  of  aban- 
donment and  the  time  when  legal  proceedings  are  commenced  there  has  been  a 
change  of  circumstances  reducing  the  loss  from  a  total  to  a  partial  one  or  in 
other  words,  if  at  the  time  of  action  brought  the  circumstances  are  such  that  a 
notice  of  abandonment  would  not  be  justifiable,  the  assured  can  only  recover 
for  a  partial  loss."  In  this  case,  after  the  vessel  was  sunk,  notice  of  abandon- 
ment was  given  to  the  insurers,  but  thereafter  and  before  action  brought,  they, 
at  their  own  expense,  raised  the  ship  and  claimed  that  as  the  ship  could  at  the 
date  of  the  action  have  been  repaired  by  the  expenditure  of  less  money  than  her 
total  value,  the  loss  was  not  total  but  a  partial  one.  It  was  held  that  the  insur- 
ers could  not  char.ge  a  total  loss  of  this  character  into  a  partial  loss  by  raising 
the  ship  at  their  own  expense.     See  also  IVnllace  v.  Ins.  Co.,  22  Fed.  66. 

LAW  OF  INSURANCE —  l6 


242  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

on  that  point,  given  and  refased  by  the  Circuit  Court  on  the  trial, 
was  the  only  question  now  before  this  court. 

There  was  very  little  conflict  of  testimony  as  to  what  was 
recovered  and  what  was  its  condition  when  tendered  to  plaintiff. 
It  was  all  of  iron.  About  half  of  it  in  weight  was  saved  and  the 
remainder  left  at  the  bottom  of  the  sea.  That  which  was  saved  was 
entirely  useless  as  machinery,  and  was  of  no  value  except  as  old 
iron,  for  which  purpose  it  would  sell  for  about  $50,  The  machinery 
in  working  order  was  worth  $2,250.  That  which  was  saved  was 
much  broken  and  rusted,  so  that  it  would  cost  more  to  repair  it, 
polish  it,  and  put  it  in  order  for  use  than  to  buy  a  new  machine. 

Upon  the  testimony  offered  by  the  plaintiff  the  counsel  for  the 
defendant  moved  the  court  to  instruct  the  jury  that  the  action  could 
not  be  sustained  because  it  showed   that  th°re  was  not  a  total  loss. 

The  court  declined  to  do  this,  and  the  request  was  renewed  at 
the  conclusion  of  the  defendant's  evidence  and  again  declined. 
Several  prayers  for  instruction  were  then  presented  by  the  defend- 
ant, based  upon  the  leading  proposition  that  if  any  of  the  pieces  of 
the  machinery  insured  was  recovered  and  tendered  in  specie  to  the 
assured,  there  was  no  total  loss.  These  were  refused  and  exceptions 
taken  to  all  these  refusals,  on  which  error  is  assigned  here.  An 
exception  was  also  taken  as  to  the  charge  of  the  court  laying  down 
the  law  by  which  the  jury  were  to  decide  the  question  of  total  loss 
submitted  to  them.     Th.it  charge  was  in  the  following  words: 

"  The  meaning  of  the  term  '  free  from  particular  average,'  used 
in  the  policy,  was  that  the  defendants  should  be  liable  only  for  a 
total  loss  of  the  subject  insured;  that  the  subject  insured  was  not 
machines,  but  machinery,  by  which  is  generally  understood  the 
several  parts  or  portions  of  machines,  adapted  and  fitted  to  be  put 
together  so  as  to  constitute  a  machine  (in  this  case  a  sugar-packing 
machine),  and,  applying  the  rule  of  law  as  to  what  constitutes  a 
total  loss  to  this  particular  subject  insured,  the  jury  will  find  whether 
any  piece  or  portion  of  the  machinery  insured  arrived  at  its  destina- 
tion in  a  perfect  condition,  so  that  it  could  have  been  used  with 
its  corresponding  or  connecting  pieces  had  they  also  arrived  in  good 
condition;  in  that  case  the  plaintiffs  could  not  recover,  as  the  loss 
would  not  be  total;  but  that  if  every  piece  of  machinery  was  so 
damaged  by  the  perils  insured  against  as  to  be  entirely  unfit  for  use 
on  being  supplied  with  its  corresponding  or  connecting  pieces,  then 
there  was  a  total  loss  of  the  subject  insured  as  machinery,  although 
the  material  itself  might  still  exist;  and  if  they  so  found  they  would 
find  a  verdict  for  the  plaintiff  for  the  sum  named  in  the  policy  with 
interest  from  the  tenth  day  of  September,  1868." 


TERMS    OF    THE    MARINE    INSURANCE    CONTRACT.  243 

Verdict  and  judgment  having  gone  for  the  plaintiff,  the  insurance 
company  brought  the  case  here. 

Mr.  Justice  Miller  delivered  the  opinion  of  the  court.  The 
question  presented  in  this  case  for  consideration  has  been  often  in  the 
courts,  and  the  discriminations  between  what  is  total  loss  and  what 
is  not  are  frequently  very  nice  and  delicate.  The  authorities  are  by 
no  means  uniform  or  consistent  with  each  other  when,  as  in  the 
present  case,  the  line  of  distinction  is  very  narrow.  Several  other 
cases  bearing  upon  the  one  before  us  have  been  decided  in  this 
court,  and  perhaps  a  short  review  of  them  may  aid  us  here  better 
than  a  more  extended  examination  of  the  numerous  other  authori- 
ties on  the  subject. 

la  the  case  of  Biays  v.  Chesapeake  Insurance  Co.,  7  Cranch,  415, 
the  plaintiff  was  insured  upon  hides,  the  whole  number  of  which  was 
14,565.  Of  these  7S9  were  totally  lost  by  the  sinking  of  a  lighter, 
and  2,491  of  those  sunk  were  fished  up  in  a  damaged  condition  and 
sold.  The  hides  were  memorandum  articles,  and  this  court  held 
that  inasmuch  as  less  than  800  hides  insured  as  part  of  a  much  larger 
number  of  the  same  kind  was  lost,  it  could  not  be  a  total  loss,  and 
overruled  the  argument  that  it  was  a  total  loss  as  to  the  789  hides. 

In  the  case  of  Marcardeir  v.  Chesapeake  Insurance  Co.,  8  Id.  47,  it 
is  said  that  "  it  seems  to  be  the  settled  doctrine  that  nothing  short 
of  a  total  extinction  either  physical  or  in  value  of  memorandum 
articles  at  an  intermediate  port  would  entitle  the  insured  to  term 
the  case  a  total  loss,  where  the  voyage  is  capable  of  being  performed. 
And  perhaps  even  as  to  extinction  in  value  where  the  commodity 
specifically  remains,  it  may  yet  be  deemed  not  quite  settled  whether, 
under  like  circumstances,  it  would  authorize  an  abandonment  for  a 
total  loss.* 

In  the  case  of  Morean  v.  The  United  States  Insurance  Co.,  i 
Wheaton,  219,  more  than  half  of  a  cargo  of  corn  was  thrown  over- 
board anJ  lost.  The  remainder  was  saved  in  a  damaged  condition 
and  soKl  at  about  one-fourth  the  market  value  of  sound  corn.  This 
was  held  not  to  be  a  total  loss,  because  part  of  the  corn  was  saved, 
and  though  damaged,  was  of  some  value.  It  was,  therefore,  only  a 
partial  loss. 

The  next  case  is  that  of  Hugg  v.  The  Augusta  Insurance  Co.,  7 
Howard,  595.  The  question  there  arose  on  an  insurance  of  jerked 
beef  of  400  tons,  part  of  which  was  thrown  into  the  sea  and  part  of 
the  remainder  was  so  seriously  damaged  that  the  authorities  of  the 
city  of  Nassau  refused  to  allow  more  than  150  of  it  to  be  landed. 
This  was  wet  and  heated,  and  not  in  a  condition  for  reshipment. 
I-    v-!?vv"r  ti  a  question  on  this  subject,  certified  to  this  court  by 


244  THE   TERMS    OF   THE    INSURANCE   CONTRACT. 

the  judges  of  the  Circuit  Court,  it  was  replied,  "  that  if  the  jury 
found  that  the  jerked  beef  was  a  perishable  article  within  the  mean- 
ing of  the  policy,  the  defendant  is  not  liable  as  for  a  total  loss  of 
the  freight,  unless  it  appears  that  there  was  a  destruction  in  specie 
of  the  entire  cargo  so  that  it  had  lost  its  original  character  at  Nas- 
sau, or  that  a  total  destruction  would  have  been  inevitable  from  the 
damage  received  if  it  had  been  reshipped  before  it  could  have  arrived 
at  Matanzas,  the  port  of  destination."  And  though  there  are  some 
very  strong  expressions  of  the  judge  who  delivered  the  opinion  as 
to  the  necessity  of  the  total  destruction  of  the  tiling  insured,  to 
establish  a  total  loss  in  memorandum  articles,  no  doubt  the  language 
here  certified  is  the  true  expression  of  the  court's  opinion.  And  it 
will  be  observed  that  in  this  case,  as  in  the  case  of  Marcardeir  v. 
Chesapeake  Insurance  Co.,  the  destruction  spoken  of  is  destruction 
as  to  species,  and  not  mere  physical  extinction.  Indeed,  philosoph- 
ically speaking,  there  can  be  no  such  thing  as  absolute  extinction. 
That  of  which  the  thing  insured  was  composed  must  remain  in  its 
parts,  though  destroyed  as  to  its  specific  identity.  In  the  case  of 
the  jerked  beef,  for  instance,  it  might  remain  as  a  viscid  mass  of 
putrid  flesh,  but  it  would  no  longer  be  either  beef  or  jerked  beef. 
And  when  the  case  went  back  for  trial  in  the  Circuit,  the  charge  of 
Taney,  C.  J.,  to  the  jury  places  this  point  in  a  very  clear  light. 
Taney's  Decisions,  i68.  He  savs  there  was  not  a  total  loss  at 
Nassau,  because  a  part  of  the  jerked  beef  remained  in  specie,  and 
had  not  been  destroyed  by  the  disaster.  And  if  there  was  reason- 
able ground  for  believing  that  a  poition  of  this  beef  could,  by 
repairing  the  vessel,  have  been  transported  to  Matanzas,  although 
it  might  arrive  there  in  a  damaged  condition,  but  yet  retaining  the 
character  of  Jerked  beef ,  there  was  no  total  loss.  The  jury  found 
there  was  a  total  loss.  The  case  of  Judah  v.  Randal,  2  Caine's 
Cases,  324,  where  a  carriage  was  insured  and  all  lost  but  the  wheels, 
is  another  illustration  of  the  principle.  A  part  of  the  carriage, 
namely,  the  wheels,  a  very  important  part,  was  saved;  but  the  court 
held  that  the  thing  insured,  to  wit,  the  carriage,  was  lost  —  that  it 
was  a  total  loss.     Its  specific  character  as  a  carriage  was  gone. 

In  the  case  of  Wallerstein  v.  The  Columbian  Insurance  Co.,  44  New 
York,  204,  the  whole  doctrine  is  ably  reviewed  with  a  very  full  ref- 
erence to  previous  decisions,  and  it  is  there  shown  that  there  is  far 
from  unanimity  in  the  language  in  which  the  rule  is  expressed;  and 
the  extreme  doctrine  of  an  absolute  extinction  or  destruction  of  the 
thing  insured  is  not  the  true  doctrine,  or,  at  least,  is  not  applicable 
in  all  cases  as  a  criterion  of  total  loss. 

The  Circuit  C-^url  was  rigln  in  holding  that  what  was  insured  was 


TERMS   OF   THE    MARINE    INSURANCE   CONTRACT.  245 

machinery  • —  pieces  or  parts  of  a  machine  —  pieces  made  and 
shaped  to  unite  at  points  with  other  pieces,  so  as  to  make  a  sugar- 
packing  machine.  If  parts  of  them  were  absolutely  lost,  and  every 
piece  recovered  had  lost  its  adaptability  to  be  used  as  part  of  the 
machine;  had  lost  it  so  entirely  that  it  would  cost  as  much  to  buy  a 
new  piece  just  like  it,  as  to  repair  or  adapt  that  one  to  the  purpose, 
Thtn  there  was  a  total  loss  of  the  machinery.  If  no  piece  recovered 
\vMs  of  any  use,  or  could  be  applied  to  any  use  connected  with  the 
machine  of  which  it  was  a  part,  without  more  expense  on  it  than  its 
original  cost,  then  there  was  no  part  of  the  machinery  saved,  how- 
ever much  of  rusty  iron  may  have  been  taken  from  the  wreck. 
The  court  went  quite  as  far  in  behalf  of  the  defendant  as  the  law 
justified,  when  it  told  the  jury  that  the  plaintiff  could  not  recover 
if  any  piece  or  portion  of  the  machinery  insured  arrived  at  its  des- 
tination in  a  condition  so  perfect  that  it  could  have  been  used  with 
its  corresponding  or  connecting  pieces,  had  they  also  arrived  in 
good  condition. 

We  are  of  the  opinion  that  the  charge  of  the  court  put  the  case 
very  fairly  to  the  jury,  as  we  understand  the  law,  and  the  judgment 
is,  therefore, 

Affirmed.' 

9.  Sue  and  Labor  Clause. 
AITCHISON  V.  LOHRE. 
4  A.  C.  755.  — 1879. 
Lord  Blackburn.  *  *  *  j^  appears  from  the  statements  in 
the  case  that  the  Critnea  on  the  voyage  home  during  the  month  of 
January  encountered  a  succession  of  stormy  weather,  and  in  con- 
sequence of  the  perils  of  the  seas  great  damage  was  done  to  her, 
and  she  was  reduced  to  a  leaky  and  water-logged  condition.  It 
appears,  incidentally,  that  some  general  average  had  arisen,  for  a 
proportion  of  which  the  ship  was  liable.  The  case  then  states  that 
"  On  the  30th  of  January,  the  ship,  being  then  in  great  danger  of 
being  completely  lost,  and  being  without  fresh  water  or  provisions, 
and  in  a  helpless  condition  and  not  capable  of  being  navigated, 
those  on  board  of  her  sighted  the  steamship  Texas,  which  ultimately 
took  her  in  tow,  without  any  agreement  being  come  to  as  to  remunera- 
tion for  the  service,  and  took  her  into  Queenstown,  and  on  or  before 
the  nth  of  March  she  was  placed  in  safety  near  the  wharf  of  the 
Victoria  Dry  Dock  Company.     *     *     * 

'  See  also  Mayo  v.  Ins.  Co.,  152  Mass.  172. 


246  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

But  there  is  a  second  point  on  which  the  courts  below  differed. 
The  policy  contains  the  usual  clause  as  to  suing  or  laboring.  The 
Queen's  Bench  Division  was  of  the  opinion  that  the  salvage,  or 
general  average  expenses,  described  in  the  case  did  not  come  within 
that  clause.  The  Court  of  Appeal  was  of  a  different  opinion.  In 
the  judgment  delivered  by  Lord  Justice  Brett,  it  is  said,  3  Q.  B.  D. 
at  p.  566,  that  "  the  general  construction  of  the  clause  is  that  if,  by 
perils  insured  against,  the  subject-matter  of  insurance  is  brought 
into  such  danger  that,  without  unusual  or  extraordinar}'  labor  or 
expense,  a  loss  will  very  probably  fall  on  the  underwriters,  and  if  the 
assured  or  his  agents  or  servants  exert  unusual  or  extraordinary 
labor,  or  if  the  assured  is  made  liable  to  unusual  or  extraordinary  expense 
in  or  for  efforts  to  avert  a  loss,  which,  if  it  occurs,  will  fall  on  the 
underwriters,  then  each  underwriter  will,"  etc.  Now  if  the  part  of 
this  which  is  above  emphasized  is  correct,  there  can  be  no  question 
that  both  salvage  and  general  average  are  unusual  expenses  to  which 
the  assured  have  become  liable  in  consequence  of  efforts  to  avert  a 
loss.  And  such  seems  to  be  the  opinion  of  the  editor  of  the  last 
edition  of  Arnould on  Insurance,  who  says,  2  Arn.  5th  Ed.  at  p.  778, 
that  salvage  "  is  recoverable  from  him  in  virtue  of  an  expense  clause 
in  the  policy  inserted  for  such  a  case,  and  known  as  the  sue  and 
labor  clause;  "  but  for  that  position  he  cites  no  authority,  and 
though  the  Court  of  Appeal,  in  this  case,  agreed  with  him,  I  am 
unable  to  do  so.  With  great  deference  to  the  judges  of  the  Court 
of  Appeal,  I  think  that  general  average  and  salvage  do  not  come 
within  either  the  words  or  the  object  of  the  suing  or  laboring 
clause,  and  that  there  is  no  authority  for  saying  that  they  do.  The 
words  of  the  clause  are  that  in  case  of  any  misfortune  it  shall  be 
lawful  "  for  the  assured,  their  factors,  servants,  and  assigns,  to  sue, 
labor,  and  travel  for,  in,  and  about  the  defence,  safeguard  an  1 
recovery  of"  the  subject  of  insurance,  "  without  prejudice  to  this 
insurance,  to  the  charges  whereof  we  the  insurers  will  contribute." 
And  the  object  of  this  is  to  encourage  and  induce  the  assured  to 
exert  themselves,  and,  therefore,  the  insurers  bind  themselves  to 
pay  in  proportion  any  expense  incurred,  whenever  such  expense 
is  reasonably  incurred  for  the  preservation  of  the  thing  from  loss,  in 
consequence  of  the  efforts  of  the  assured  or  their  agents.  It  is  all 
one  whether  the  labor  is  by  the  assured  or  their  agents  themselves, 
or  by  persons  whom  they  have  hired  for  the  purpose,  but  the 
object  was  to  encourage  exertion  on  the  part  of  the  assured;  not  to 
provide  an  additional  remedy  for  the  recovery,  by  the  assured,  of 
=  indemnity  for  a  loss  which  was,  by  the  maritime  law,  a  consequence 
of  the  peril.     In  some  cases  the  agents  of  the  assured  hire  persons  to 


TERMS   OF   THE    MARINE   INSURANCE   CONTRACT.  247 

render  services  on  the  terms  that  the}'  shall  be  paid  for  their  work 
and  labor,  and  thus  obviate  the  necessity  of  incurring  the  much 
heavier  charge  which  would  be  incurred  if  the  same  services  were 
rendered  by  salvors,  who  are  to  be  paid  nothing  in  case  of  failure, 
and  a  large  remuneration  proportional  to  the  value  of  what  is  saved 
in  the  event  of  success.  I  do  not  say  that  such  hire  may  not  come 
within  the  suing  and  laboring  clause.  But  that  is  not  this  case. 
The  owners  of  the  Texas  did  the  labor  here,  not  as  agents  of  the 
assured,  and  being  to  be  paid  by  them  wages  for  their  labor,  but  as 
salvors  acting  on  the  maritime  law,  which,  as  explained  by  Lord 
Chief  Justice  Eyre,  in  Nicholson  v.  Chapman^  2  H.  Bl.  at  p.  257, 
already  cited,  gives  them  a  claim  against  the  property  saved  by  their 
exertions,  and  a  lien  on  it,  and  that  quite  independently  of  whether 
there  is  an  insurance  or  not;  or  whether,  if  there  be  a  policy  of 
insurance,  it  contains  the  suing  or  laboring  clause  or  not.  The 
amount  of  such  salvage  occasioned  by  a  peril  has  always  been 
recovered,  without  dispute,  under  an  averment  that  there  was  a  loss 
by  that  peril;  see  Cary  v.  King,  Cas.  t.  Hardw.  304;  and  I  have  not 
been  able  to  find  any  case  in  which  it  was  recovered  under  a  count 
for  suing  and  laboring.  I  do  not  much  rely  on  this,  for  it  is  very 
likely  that  such  counts  often  were  in  the  declaration,  and  that 
therefore,  no  inquiry  was  made  whether  the  loss  was  recoverable 
under  one  count  or  another;  but  at  least  there  is  no  authority  for 
the  position  that  salvage  (properly  so  called)  was  recoverable  under 
that  count. 

There  have  been  very  few  cases  in  our  courts  in  which  it  has 
become  necessary  to  discuss  the  nature  of  the  suing  and  laboring 
clause.  Kidston  v.  The  Marine  Insurance^  Law  Rep.,  i  C.  P.  535, 
is,  I  think,  the  only  one  in  which  there  has  been  a  recovery  under 
it.  There,  however,  all  the  extra  labor  was  directly  and  voluntarily 
employed  by  the  agents  of  the  assured;  and  the  charges  were  paid 
by  them  in  consequence  of  this  employment.  In  the  very  able  and 
elaborate  judgment  of  Mr.  Justice  Willes,  not  a  word  can  be  found 
to  countenance  this  extension  of  the  construction  of  the  clause 
beyond  what  seems  to  me  both  its  language  and  its  object;  and, 
except  the  passage  introduced  for  the  first  time  into  Arnould  by  the 
present  editor,  I  can  find  nothing  in  any  text-book  tending  to  sup- 
port it.  I,  therefore,  think  that  the  judgment  of  the  Court  of 
Appeal  should  be  reversed  and  that  of  the  Queen's  Bench  Division 
restored.     *     *     * 

[Opinions  also  by  the  Lord  Chancellor,  by  Lord  Hatherlev 
and  by  Lord  O'Hagan.] 


248  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

IV.  Terms  of  the  Life   Insurance  Contract. 

I.   Age. 
^TNA  LIFE  INSURANCE  CO.  v.  FRANCE  et  al. 

91  U.  S.  510.  —  1875. 

Mr.  Justice  Hunt. —  The  action  was  assumpsit  to  recover  $10,000, 
the  amount  of  a  policy  insured  upon  the  life  of  Andrew  J.  Chew,  in 
July,  1S65.     *     *     *     Xhe  policy  contained  the  following  clause: 

"  And  it  is  also  understood  and  agreed  to  be  the  true  intent  and 
meaning  hereof,  that  if  the  proposal,  answ^ers,  and  declaration  made 
by  said  Andrew  J.  Chew,  and  bearing  date  of  the  12th  day  of  July, 
1865,  and  which  are  hereby  made  part  and  parcel  of  this  policy  as 
fully  as  if  herein  recited,  and  upon  the  faith  of  which  this  agreement 
is  made,  shall  be  found  in  any  respect  to  be  false  or  fraudulent, 
then  and  in  such  case  this  policy  shall  be  null  and  void."  The 
issuing  of  the  policy  was  preceded  by  a  proposal  for  insurance, 
which  contained  a  number  of  questions  propounded  to  Chew  by  the 
company,  with  the  answers  made  by  him.     *     *     * 

Among  others  were  the  following  questions  and  answers,  viz.: 

"  4.  Q.  Place  and  date  of  birth  of  the  party  whose  life  is  to  be 
insured? 

"  A.   Born  in  1835,  interlined  (Oct.  28),  Gloster  county,  N.  J. 

"  5.   Q.  Age  next  birthday? 

"  A.   Thirty  years."     *     *     * 

Evidence  upon  both  sides  was  given  as  to  the  age  of  Chew  tend- 
ing to  show  that  he  was  thirty-seven  years  old,  or  at  least  thirty-five 
years  old,  when  he  signed   the  application.     *     *     * 

The  judge  was  requested  to  charge,  —  5.  If  the  jury  believe  that 
the  answers  to  questions  Nos.  4  and  5  in  the  application  for  insur- 
ance, as  to  the  date  of  birth,  and  age  next  birthday,  of  said  Andrew 
J.  Chew,  were  false  and  untrue,  the  policy  issued  upon  the  applica- 
tion is  void,  and  their  verdict  must  be  for  the  defendants. 

In  response  to  this  request,  the  judge  said,  "  If  the  jury  believe 
that  the  answer  to  the  questions  numbered  4  and  5  were  materially 
untrue  as  to  the  age  of  the  said  Andrew  J.  Chew,  the  policy  is  void, 
and  the  verdict  must  be  for  the  defendants."  The  defendants  were 
entitled  to  the  charge  they  requested,  without  the  addition  made  by 
the  judge  of  the  word  "  materially."  The  judge,  however,  proceeded 
to  say,  "  And  if  he  was  thirty-seven,  or  even  thirty-five  years  old, 
the  difference  was  not  immaterial.  I  give  the  fifth  instruction  as 
requested." 

The  process  of  reasoning  by  which  the  learned  judge  reached  his 


TERMS   OF   THE    LIFE    INSURANCE   CONTRACT,  249 

conclusion  on  this  point  we  have  held  to  be  erroneous,  viz.:  that, 
to  make  the  representation  important,  it  must  be  material  to  the 
risk  assumed;  that  the  representation  that  he  was  but  thirty  years 
old,  when  he  was  thirty-seven,  or  even  thirty-five,  was  material  to 
the  risk;  and,  if  the  jury  believed  that  he  was  of  the  greater  age 
mentioned,  their  verdict  must  be  for  the  defendants;  and,  therefore, 
he  charged  as  requested.  The  charge  should  have  been,  that,  as 
Chew  had  represented  himself  to  be  but  thirty  years  of  age,  if  the 
jury  found  him  then  to  be  thirty-five  years  old,  the  false  statement 
would  avoid  the  policy,  and  they  must  find  for  the  defendants,  rest- 
ing his  direction  upon  the  falsity  alone  of  the  statement. 

Still  we  do  not  see  that  the  defendants  can  ask  relief  for  this 
reason.  The  charge  was  right,  and  could  not  be  misunderstood  by 
the  jury.  The  allegation  of  the  defendants  was  that  Chew  had  mis- 
represented his  age  in  the  manner  stated,  and  therefore  the  policy 
should  be  adjudged  void.  The  judge  charged  that,  if  he  had  so 
misrepresented,  the  policy  was  void,  and  the  verdict  must  be  for  the 
defendants.  We  think  no  valid  exception  can  be  taken  to  this 
charge.     *     *     * » 


2.   Health. 
MAINE  BENEFIT  ASSOCIATION  v.  PARKS, 

81  Me.  79. —  1888, 

Peters,  C.  J.  —  The  complainants,  by  this  bill,  seek  to  have 
cancelled  a  life  insurance  policy,  issued  by  them  to  Alice  J.  Parks, 
for  the  benefit  of  her  husband.  It  is  claimed  that  the  policy  was 
wrongfully  obtained,  or  improvidently  issued.  She  has  died  since 
this  proceeding  was  instituted.     The  policy  being  for  the  benefit  of 

'"  We  are  of  opinion  that  the  jury  should  have  been  instructed,  as  requested 
by  the  defendant,  that '  an  understatement  of  age  increases  the  risk  of  loss  in 
a'life  insurance  contract  as  matter  of  law.'  The  jury  were  permitted  to  find, 
as  a  matter  of  fact,  that  such  a  misstatement  did  not  increase  the  risk,  and  to 
return  a  verdict  for  the  plaintiff  on  that  ground.  It  seems  clear  that  death  is 
likely  to  come  more  quickly  to  a  persdn  of  a  given  age  in  sound  health  than  if 
he  were  considerably  younger,  all  other  conditions  being  the  same.  It  may  be 
that  in  an  insurance  for  a  short  term,  or  upon  an  endowment  policy,  the  rule 
is  not  applicable  to  persons  of  every  age  and  in  all  conceivable  conditions;  but 
upon  a  policy  for  life  we  think  it  should  be  held,  as  matter  of  law,  that  a  mate- 
rial increase  of  age  increases  the  risk.  See  Brown  v.  Greenfield  Life  Associa- 
tion^ 172  Mass.  498;  Rainger  v.  Boston  Mutual  Life  Association,  167  Mass.  109." 
—  Dolan  V.  Assoc,  173  Mass.  197,  200. 


250  THE   TERMS    OF   THE    INSURANCE   CONTRACT. 

her  husband,  the  bill  may  be  continued  against  him  as  her  survivor. 

The  ground  upon  which  the  bill  seeks  a  cancellation  of  the  policy 
is,  that  she  falsely  stated  in  her  application  that  she  was  at  the  date 
in  good  health,  and  that  she  had  usually  had  good  health.  She 
declares  at  the  close  of  her  application,  which  is  made  a  part  of  the 
policv,  that  she  warrants  all  her  statements  in  general  and  particu- 
lar to  be  true  to  the  best  of  her  knowledge  and  belief,  and  that  any 
untrue  or  fraudulent  statement  or  concealment  of  facts  by  her  shall 
forfeit  and  cancel  all  rights  to  any  benefit  under  the  policy.  The 
questions  of  fact,  whether  she  had  good  health  when  insured,  and 
whether  she  usually  had  good  health,  were  submitted  to  a  jury 
which  found  in  her  favor.  The  motion  is,  by  the  complainants, 
not  only  to  set  the  verdict  aside,  but  that  the  court,  notwithstand- 
ing the  verdict,  shall  declare  the  policy  to  be  void.  The  judge  has 
reported  the  evidence,  on  this  motion,  to  the  full  court  for  its 
decision  of  the  questions  presented.  Possibly  a  question  exists  as  to 
whether  her  answers  in  the  application  are  warranties  or  representa- 
tions, and  nice  distinctions  may  be  found  in  the  decided  cases 
between  the  two  kinds  of  contract.  But  that  is  immaterial  here, 
as  in  either  case  the  policy  should  be  declared  void,  if  the  state- 
ments were  untrue.  It  matters  not  whether  they  were  warranted 
to  be  true,  or  merely  represented  to  be  true,  if  in  fact  untrue. 
Campbell  v.  Life  Ins.  Co.,  98  Mass.  381;  2  Pars.  Cont.,  cited  post, 
and  cases. 

The  insured  was  about  twenty-four  years  old,  had  three  children, 
one  about  six  months  old,  when  her  application  was  made.  She 
was  confined  by  the  birth  of  her  infant  in  November,  1887,  and 
was  sick  of  typhoid  fever  in  January,  1888,  from  which  she  got  up 
sometime  in  March  afterwards.  Her  application  is  dated  March  i, 
1888,  she  was  examined  by  the  medical  agent  of  the  company  on 
April  i8th,  and  her  application  was  approved  by  the  company  on  April 
22d.  On  May  12,  1888,  her  physician  was  called,  who  found  her 
weak,  with  a  cough,  and  sick  with  consumption,  from  which  disease 
she  died  on  the  21st  of  July  afterwards.  The  complainants  con- 
tended that  she  was  sick  of  incipient  consumption  as  early  as  when 
her  application  was  tendered  to  the  company,  and  that  she  never 
really  recovered  from  the  effects  of  the  fever,  with  which  she  was 
afflicted  at  the  beginning  of  the  year.  These  positions  are  denied 
by  the  other  side. 

The  usual  question  arises  as  to  what  is  good  health,  and,  as  we 
find  no  statement  of  the  law  on  the  question  more  satisfactory  than 
that  of  Professor  Parsons,  summarized  from  the  authorities,  we 
quote   from   it  as  expressive   of  our  views  on  the  subject:     "  The 


TERMS   OF   THE    LIFE    INSURANCE   CONTRACT.  25 1 

health  of  the  body  required  to  make  the  policy  attach,  does  not 
mean  perfect  and  absolute  health;  for  it  may  be  supposed  that  this 
is  seldom  to  be  found  among  men.  '  We  are  all  born,'  said  Lord 
Mansfield,  '  with  the  seeds  of  mortality  in  us.'  Nor  can  there  be 
any  other  definition  or  rule  as  to  this  requirement  of  good  health 
than  that  it  should  mean  that  whicn  would  ordinarily  and  reasonably 
be  regarded  as  good  health.  Nor  should  we  be  helped  by  saying 
that  this  good  health  must  exclude  all  disorders,  or  infirmities,  which 
might  possibly  shorten  life;  for,  as  has  been  well  said  in  an  instruc- 
tive English  case,  that  may  be  said  of  every  disorder  or  infirmity^. 
But  it  must  obviously  be  very  difficult  to  determine  questions  like 
these  by  any  general  rule.  And  it  is  the  usual  practice  of  courts  to 
leave  these  questions  to  the  jury.  *  *  *  Courts  and  juries 
usually,  and  we  think  properly,  construe  these  questions  and  answers 
quite  liberally  in  favor  of  the  answerer,  and  quite  strictly  against  the 
insurers,  unless  there  be  a  reasonable  suspici  jn  of  fraud.  The  good 
faith  of  the  answers  should  be  perfect.  The  presence  of  it  goes  very 
far  to  protect  a  policy,  while  a  want  of  it  would  be  an  element  of 
great  power  in  the  defense."     2  Pars.  Cont.  (6th  ed.)  465. 

There  is  obviously  a  close  line  between  incipient  disease,  disease 
in  its  first  stages,  and  merely  a  bodily  condition  which  is  susceptible 
to  the  contraction  of  disease.  A  weak  person  may  be  well,  and  a 
strong  person  sick.  And,  of  course,  a  person  may  have  a  disease 
upon  him  without  knowing  it.  The  complainants  contend  that, 
whether  the  insured  knew  or  appreciated  the  fact  or  not,  there  was 
an  unbroken  connection  between  the  fever  and  the  consumption,  one 
running  into  the  other,  the  effect  of  which  caused  death,  and  that 
it  was  impossible  that  she  was  in  good  health  when  insured.  We 
are  so  strongly  impressed,  that  the  jury  have  committed  error  in 
their  findings,  we  think  the  verdict  should  be  set  aside,  and  the  case 
decided  without  committing  it  to  a  jury  again.  It  would,  to  our 
minds,  be  flagrant  injustice  to  other  policy-holders  on  the  facts 
presented,  and  evidently  no  other  material  facts  are  attainable,  to 
allow  this  policy  to  stand.  Larrabee  v.  Grant,  70  Maine,  79.  We 
think  the  bill  should  be  sustained  without  costs,  the  policy  annulled, 
and  all  premiums  received  be  returned. 

Decree  accordingly. 

Walton,  Danforth,  Virgin,  Emery  and  Haskell,  JJ.,  con- 
curred.' 


'  "  The  court  also  instructed  the  jury  as  to  the  meaning  of  the  term  '  good 
health  '  as  follows:  '  Good  health  means  that  he  had  no  grave,  important,  or 
serious  disease.     *     *     *     It  means  a  state  of   health  free  from  any  disease  or 


252  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

Ragan,  C,  in  KETTENBACH  v.  OMAHA   LIFE  ASSOC. 

49  Neh.  842,  S49.  —  1896. 

In  this  application  '  the  assured  was  asked  if  he  had  then,  or  had 
ever  had  since  childhood,  any  of  fifty-seven  named  diseases.  What 
sane  man  would  consciously  warrant  that  ever  since  his  childhood 
he  had  not  had  any  disease  of  the  heart,  liver,  lungs,  kidneys,  blad- 
der, stomach,  or  bowels?  No  sane  man  would  consciously  consent 
that  on  the  literal  truth  of  his  negative  answer  to  such  a  question 
should  depend  the  validity  of  a  life  insurance  policy.  It  might 
require  a  post-mortem  examination  to  enable  medical  experts  to 
determine  whether  any  of  such  organs  of  the  assured  had  since  his 
childhood  been  diseased;  and  yet  if  these  answers  were  warranties, 
and  such  an  examination  revealed  a  diseased  organ,  the  policy 
would  be  void.  The  language  of  the  lamented  Justice  Miller  in 
Insurance  Co.  v.  Eicing,  92  U.  S.  377,  is  applicable  here:  "  How 
can  a  man  who  has  lived  forty  or  fifty  years  prove  that  he  never 
had  dyspepsia  or  a  diarrhc^a  or  any  disease  of  the  heart  or  bowels? 
And  how  can  he  prove  that  his  habits  of  life  have  always  been  cor- 
rect, and  that  he  never  drank  ardent  spirits  to  the  extent  of  intem- 
perance? While  it  may  be  easy  enough  to  prove  the  affirmative  of 
one  of  these  questions,  it  is  next  to  impossible  to  prove  the  nega- 
tive. The  number  of  the  questions  now  asked  of  the  assured  in 
every  application  for  a  policy,  and  the  variety  of  subjects,  and 
length  of  time  which  they  cover,  are  such  that  it  may  be  safely  said 
that  no  sane  man  would  ever  take  a  policy  if  proof  to  the  satisfaction 
of  a  jury  of  the  truth  of  every  answer  were  made  known  to  him  to 
be  an  indispensable  prerequisite  to  payment  of  the  sum  secured, 
that  proof  to  be  made  only  after  he  was  dead,  and  could  render  no 
assistance  in  furnishing  it."  In  this  case  if  we  are  to  consPder  each 
of  these  statements  and  answers  of  the  assured  to  be  warranties, 
in  order  to  do  so  we  are  compelled  to  adopt  one  of  two  assumptions: 
We  must  either  presume  that  the  insured  was  insane  or  a  man  of 
such  colossal  ignorance  as  to  render  his  contracts  voidable,  or  that 

ailment  thai  affects  the  general  soundness  and  healthfulness  of  the  system 
seriously,  and  not  'a  mere  indisposition,  which  does  not  tend  to  weaken  or 
undermine  the  constitution  of  the  assured.  A  mere  temporary  ailment  or 
indisposition,  which  does  not  tend  to  undermine  the  constitution  at  the  lime  of 
taking  membership,  does  not  render  a  policy  void.'  This  charge  was  but  fol- 
lowing the  language  of  this  court  in  Brorvn  v.  Insurance  Co.,  65  Mich.  306,  and 
Pudritzky  v.  Knights  of  Honor,  76    Id.  428."  —  Hann    v.  N'af.   Union,  97   Mich. 

513.  519- 

'  The  application   in   this  case  was,  by  stipulation  in  the  policy,  made  a  part 

of  the  policy. 


TERMS   OF   THE   LIFE    INSURANCE    CONTRACT.  253 

the  insurance  company,  aware  of  the  technical  legal  meaning  of  the 
term  "  warranty  "  (and  the  assured  being  ignorant  thereof),  pur- 
posely used  it,  so  that,  in  case  the  assured  died  before  the  premiums 
he  paid  equaled  the  amount  of  the  risk,  they  might  use  that  term 
to  defeat  his  representatives.  We  do  not  think  it  fair  or  just  either 
to  the  insurance  company  or  to  the  insured  to  indulge  either  of 
these  presumptions,  but  prefer  to  rest  our  decision  on  the  proposition 
that  the  conduct  and  language  of  the  contracting  parties  lead  us  to 
the  conclusion  that  the  mind  of  the  assured  never  consciously 
intended  and  consented  that  the  answers  he  made  to  the  questions 
propounded  to  him  should  be  deemed  and  taken  to  be  warranties, 
as  that  term  is  understood  in  insurance  law;  and  we  accordingly 
hold  that  the  statements  and  the  answers  made  by  the  insured  in  his 
application  for  the  policy  in  this  suit  were  not  warranties  but  repre- 
sentations. See  ^^tna  Life  Ins.  Co.  v.  Simmons,  49  Neb.  811,  and 
cases  there  cited. 


Harlan,  J.,  in  MOULOR  v.  AMERICAN  LIFE  INSUR- 
ANCE CO. 

Ill  U.  S.  335,345.-1884. 

The  entire  argument  in  behalf  of  the  company  proceeds  upon  a 
too  literal  interpretation  of  those  clauses  in  the  policy  and  applica- 
tion which  declare  the  contract  null  and  void  if  the  answers  of  the 
insured  to  the  questions  propounded  to  him  were,  in  any  respect, 
untrue.  What  was  meant  by  "  true  "  and  "  untrue  "  answers?  In 
one  sense,  that  only  is  true  which  is  conformable  to  the  actual 
state  of  things.  In  that  sense,  a  statement  is  untrue  which  does 
not  express  things  exactly  as  they  are.  But  in  another  and  broader 
sense,  the  word  "  true  "  is  often  used  as  a  synonym  of  honest,  sin- 
cere, not  fraudulent.  Looking  at  all  the  clauses  of  the  application, 
in  connection  with  the  policy,  it  is  reasonably  clear  —  certainly  the 
contrary  cannot  be  confidently  asserted  —  that  what  the  company 
required  of  the  applicant,  as  a  condition  precedent  to  any  binding 
contract,  was,  that  he  would  observe  the  utmost  good  faith  towards 
it,  and  make  full,  direct,  and  honest  answers  to  all  questions,  with- 
out evasion  or  fraud,  and  without  suppression,  misrepresentation 
or  concealment  of  facts  with  which  the  company  ought  to  be  made 
acquainted;  and  that  by  so  doing,  and  only  by  so  doing,  would  he 
be  deemed  to  have  made  "  fair  and  true  answers 

If  it  be  said  that  an  individual  could  not  be  afflicted  with  the 
diseases  specified  in  the  application,  without  being  cognizant  of  the 


254  THE   TERMS   OF   THE    INSURANXE   CONTRACT. 

fact,  the  answer  is  that  the  jury  would,  in  that  case,  have  no  serious 
difficulty  in  finding  that  he  had  failed  to  communicate  to  the  com- 
pany what  he  knew  or  should  have  known  was  material  to  the  risk, 
and  that,  consequently,  for  the  want  of  "  fair  and  true  answers," 
the  policy  was,  by  its  terms,  null  and  void.  But,  whether  a  disease 
is  of  such  a  character  that  its  existence  must  have  been  known  to 
the  individual  afflicted  with  it,  and,  therefore,  whether  an  answer 
denying  its  existence  was  or  not  a  fair  and  true  answer,  is  a  matter 
which  should  have  been  submitted  to  the  jury.  It  was  an  erroneous 
construction  of  the  contract  to  hold,  as  the  court  below  did,  that 
the  company  was  relieved  from  liability  if  it  appeared  that  the 
insurer  was,  in  fact,  afflicted  with  the  diseases  or  any  of  them, 
mentioned  in  the  charge  of  the  court.  The  jury  should  have  been 
instructed,  so  far  as  the  matters  here  under  examination  are  con- 
cerned, that  the  plaintiff  was  not  precluded  from  recovering  on  the 
policy,  unless  it  appeared  from  all  circumstances,  including  the 
nature  of  the  diseases  with  which  the  insured  was  alleged  to  have 
been  afflicted,  that  he  knew,  or  had  reason  to  believe,  at  the  time  of 
his  application,  that  he  was  or  had  been  so  afflicted.' 


Medical  Attendant.  —  In  Nelson  v.  Ins.  Co.,  8i  N.  W.  807  (la.), 
these  questions  and  answers  were  in  the  application:  "  Q.  What  is 
the  name  and  address  of  your  medical  attendant,  or  that  of  your 
family?  A.  None.  Q.  What  physicians  have  you  consulted  here  or 
elswhere?  When?  For  what  complaints?  A.  None."  The  com- 
pany defended  an  action  upon  the  policy  on  the  ground  that  the 
insured's  answers  were  false.  The  court  said:  "If  the  insured 
consulted  a  physician,  even  though  for  a  disease  other  than  that 
from  which  death  resulted,  or  from  apprehension  of  having  some 
ailment,  the  defendant  was  interested  in  knowing  the  fact,  that 
further  investigation  might  be  made.  By  the  answers  that  none 
had  been  seen,  it  may  have  been  induced  to  refrain  from  doing  so. 
The  information  as  to  whether  the  insured  had  had  occasion  to 
resort  to  medical  aid,  however,  would  seem  of  no  little  importance 
to  a  company  about  to  take  a  risk  on  the  extent  of  his  life,  and,  if 

'  In  Powers  v.  Assoc,  50  Vt.  630,  the  application  and  policy  stipulated  for  the 
truth  of  the  answers;  the  court  said  (p.  636):  "  It  is  wholly  immaterial  whether 
the  applicant  knew  of  the  existence  of  the  disease,  because  he  agreed  absolutely 
that  it  did  not  exist.  Nor  is  it  any  answer  to  say  that  the  question  is  a  scien- 
tific one.  and  a  layman  might  easily  be  deceived  into  a  false  answer.  Scientific 
or  simple,  the  applicant  took  the'risk  of  the  answer.  If  he  had  answered  that 
he  had  no  knowledge  that  the  disease  existed,  the  finding  of  the  jury  might 
affect  the  result." 


TERMS   OF   THE    LIFE    INSURANCE   CONTRACT,  255 

f.ilse  in  this  respect,  there  appears  no  ground,  in  the  absence  of 
statutory  enactment,  for  upholding  a  contract  based  thereon.  As 
directly  in  point  see  Cobb  v.  Association  (Mass.),  26  N.  E.  231,  10 
L.  R.  A.  666;  Insurance  Co.  v.  McTague,  49  N.  J.  L.  587,  9  Atl.  766." 

In  Sfe7vai-t\.  Ins.  Co.,  81  N.  W.  782  (la.),  the  application  contained 
this  question :  "  How  long  since  you  have  consulted  a  physician?  " 
The  answer  was,  "  Five  years."  Evidence  that  the  insured  had 
consulted  physicians  during  the  year  previous  was  held  insulTficient 
to  establish  the  falsity  of  insured's  answer,  because  the  question  was 
ambiguous,  and  could  be  construed  to  mean  either  how  long  "  since 
he  last"  or  how  long  "  since  he  first"  consulted  a  physician,  and 
it  did  not  appear  which  construction  he  had  given  it. 

In  Supreme  Lodge  v.  Taylor,  24  So.  247  (Ala.),  this  question  was 
asked  in  the  application:  "  Have  you  consulted  a  physician  during 
the  last  five  years?  Answer.  Yes.  When  and  for  what  disease  ? 
Answer.  Broken  collar  bone."  Defendant  averred  that  the  insured 
had  taken  what  is  known  as  the  Keeley  Cure  for  alcoholism,  and 
that  said  Taylor  had  warranted  the  truth  of  all  statements  in  the 
application  This  plea  of  defendant  was  adjudged  bad  on  demurrer, 
the  court  saying,  "  Drunkeness,  in  common  and  ordinary  speech  at 
least,  is  not  a  disease,  but  a  habit.  We  speak  of  the  habit  of  drink- 
ing to  excess,  never  of  the  disease  of  such  indulgence;  of  habitual 
drunkenness  or  an  habitual  drunkard,  but  never  of  chronic  drunken- 
ness or  a  diseased  drunkard." 

In  Price  v.  Ins.  Co.,  17  Minn.  497,  519,  the  question  was,  "  Name 
and  residence  of  the  family  physician  of  the  party,  or  of  one  whom 
the  party  has  usually  employed  or  consulted?  Answer  —  have  none." 
The  court  saiJ:  "  The  phrase  '  family  physician  '  is  in  common  use, 
an.]  has  not,  so  far  as  we  are  aware,  any  technical  signification.  As 
used  in  this  instance,  and  for  the  purposes  of  the  testimony  appear- 
ing in  this  case,  the  chief  justice  and  myself  are  of  opinion  that  it 
may  be  suff.ciently  defined  as  signifying  the  physician  who  usually 
attends,  and  is  consulted  by  the  members  of  a  family  in  the  capacity 
of  physician." 

Heredity.  — In  Insi/rance  Co.  v.  Gridley,  100  U.  S.  614,  the  appli- 
cation contained,  among  others,  the  following  question:  "  Have 
the  person's  (whose  life  is  to  be  assured)  parents,  uncles,  aunts, 
brothers  or  sisters  been  afflicted  with  consumption,  scrofula,  insanity, 
epilepsy,  disease  of  the  heart  or  any  other  hereditary  disease^  " 
The  applicant  answered:  "  No,  except  one  brother,  temporarily 
insane  six  months  since.  Causes,  domestic  and  financial  troubles, 
followed  by  hard  drinking  and  excessive  use  of  opium  and  morphine. 
Recovery  followed  reformed  habits.     No  hereditary  taint  of  any  kind 


256  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

in  family  on  either  side  uf  house,  to  my  knowledge."  The  court  said: 
"  It  was  material  to  the  risk,  and  hence  important  to  the  insurers,  to 
know  whether  either  of  the  maladies  named  or  any  serious  malady  not 
named  was  hereditary  in  the  family  of  the  applicant.  If  the  question 
were  answered  in  the  affirmative,  it  might  be  a  reason  for  declining 
to  issue  the  policy.  On  the  other  hand,  if  either  of  such  maladies 
existed  in  a  member  of  the  family  other  than  the  applicant,  but  was 
not  hereditary,  and,  on  the  contrary,  existed,  according  to  the  family 
history,  for  the  first  time  in  the  person  affected,  and  in  that  case 
was  the  effect  of  known  contemporaneous  causes,  then  it  was  not 
material  to  the  risk,  was  of  no  interest  to  insurers,  and  it  is  fairly 
to  be  presumed  they  did  not  care  to  be  advised  upon  the  subject. 
This  may  be  illustrated  by  the  case  of  insanity  mentioned  in  the 
answer  of  the  applicant.  He  says  his  brother  was  afflicted  in  that 
way.  '  Causes,  domestic  and  financial  troubles,  followed  by  hard 
drinking  and  excessive  use  of  opium  and  morphine.'  He  adds: 
'  Recovery  followed  reformed  habits.'  This  explanation  took  the 
subject  wholly  out  of  the  scope  and  purpose  of  the  inquiry  by  the 
company,  and  made  it,  as  it  were,  re's  inter  alios  acta.'" 

Intoxicants. — For  cases  upon  this  subject,  eee  Terms  of  the 
Accident  Insurance  Contract,  post,  p.  295. 


3.   Occupation.' 

4.  Other  Insurance. 

PHCENIX  LIFE  INSURANCE  CO.  v.  RADDIN. 

120  U.  S.  183. —1887. 
[Reported  herein  at  p.  lOS.] 


5.   Military  or  Naval  Service." 


6.   Residence  and  Travel. 
Earl,  J.,  in  EVANS  v.  UNITED  STATES  LIFE  INSUR- 
ANCE CO. 

64  N.  Y.  304,  307.  —1876. 
The  policy  contained   a  provision  that  it  should  be  "  void,  null 
and  of  no  effect,"  in  case  Starr,   whose  life   was   insured,   should, 
between  the  first  day  of  July  and  the  first  day  of  November  in  any 

'  For  cases  uoon  this  subject,  see  Terms  of  the  Accident  Insurance  Contract, 
post,  p.  299. 

*  See  Occupation  under  Terms  of  the  Accident  Insurance  Contract,  post,  p.  301. 


TERMS    OF   THE    LIFE    INSURANCE   CONTRACT.  257 

year,  visit  any  part  of  the  United  States  lying  south  of  the  southern 
boundaries  of  Virginia  and  Kentucky  without  the  written  consent 
of  the  company.  In  November,  1869,  he  went  to  Louisiana  and 
remained  there  until  he  died,  on  the  i8th  of  March,  1872.  The 
defendant  alleged  this  as  a  breach  of  the  policy  and  refused  pay- 
ment upon  this  ground.  He  had  the  written  permit  of  the  defend- 
ant to  go  to  New  Orleans  and  remain  there  until  the  ist  day  of  July, 
1870.  The  claim  on  behalf  of  the  plaintiff  is  that  he  became  so  sick 
and  feeble  that  he  could  not  return,  and  hence  that  his  return  was 
rendered  impossible  by  the  act  of  God,  and  that,  therefore,  his 
absence  was  excused  and  there  was  no  breach  of  the  policy.  Even 
if  this  claim  were  otherwise  valid  the  facts  do  not  sustain  it.  The 
only  proof  upon  the  subject  is  that  he  met  with  an  accident  before 
going  south;  that  his  health  was  very  poor  in  the  summer  of  1870, 
and  "  he  could  ride  out  to  the  plantation  in  which  he  was  interested 
in  a  buggy,  and  ride  back,  not  getting  out  of  it,  and  was  never  any- 
better."  No  witness  testified  that  he  was  too  unwell  to  return 
north  or  that  he  made  any  effort  to  return,  and  his  condition  before 
July  first  was  not  described.  To  bring  the  case  within  the  supposed 
rule  there  should  have  been  proof  that  for  some  time  before  July 
first  he  was  unable  to  travel  by  any  of  the  usual  modes;  not  that  it 
was  merely  inconvenient  for  him  to  travel,  but  impossible.  He  was 
bound  to  return  if  he  could  travel  by  short  stages,  or  by  incurring 
unusual  expense  to  secure  comfort,  safety  and  convenience.  But 
another  answer  to  this  claim  is  that  he  took  the  chances  of  being  able 
to  return.  He  went  south  for  business  purposes,  knowing  that  the 
policy  would  be  avoided  if  he  did  not  return  by  the  first  day  of  July. 
He  had  the  right  to  go  and  remain  there  until  July  first  without  the 
permit  of  the  company.  He  obtained  that  that  he  might,  without 
violating  another  condition  in  the  policy,  go  and  return  upon  the 
ocean  if  he  desired  to.  He  was  feeble  when  he  went,  and  he  could 
not  go  so  far  south  that  he  could  not  return,  and  after  remaining 
there  until  he  was  too  feeble  to  return  enable  the  holder  of  the 
policy  to  claim  that  his  return  was  rendered  impossible  by  the  act  of 
God,  and  that  thus  the  breach  of  the  condition  was  excused. 

The  policy,  therefore,  became  absolutely  void  after  July  i.  1870. 
It  was  unnecessary  for  defendant  to  make  any  election  or  to  do 
anything  else  to  render  it  void.  It  became  dead  by  its  own  terms, 
and  could  never  again  have  any  vitality  except  by  some  sufficient 
act  of  the  defendant  reclothing  it  with  life.     *     *     *i 

•  In  Hathaway  v.  Co.,  11  Cush.  448,  "  A  person  whose  life  was  insured  within 
the  United  States  had  permission  to  go  to  California  and  return  home  round 
Cape    Horn,   or   by   Vera   Cruz.     Being   taken   sick    in  California,  he  returned 

LAW  OF  INSURAN'CE — I  7 


25»  THE   TERMS   OF   THE   INSURANXE    CONTRACT. 

7.   Suicide. 

PATTERSON  and  Others  v.  NATURAL  PREMIUM    MUT. 

LIFE  INS.  CO. 

100  Wis.  iiS.  —  1S9S. 

Action  to  recover  upou  an  insurance  policy  issued  by  the  appel- 
lant July  20,  1895,  upon  the  life  of  Alexander  W.  Patterson,  and 
originally  payable  to  the  administrators,  executors,  or  assigns  of 
the  insured.  On  the  4th  of  October,  1895,  the  policy  was  assigned, 
with  the  consent  of  the  company,  to  the  plaintiffs,  who  are  the  chil- 
dren of  the  insured. 

The  insured  had  no  active  employment,  and  was  in  financial  diffi- 
culties and  shortly  prior  to  his  suicide  talked  with  his  children  con- 
siderably about  his  business  affairs,  but  showed  no  evidence  of 
insanity.  On  the  night  of  February  25,  1896,  he  deliberately  shot 
and  killed  his  wife  at  his  home,  and  then  called  his  daughter  to  the 
room,  to  see  that  she  was  in  fact  dead,  after  which  he  shot  and 
killed  himself.  The  expert  evidence  given  on  the  trial  tended 
strongly  to  show  that  the  insured  was  sane  when  he  killed  himself. 

WiNSLOw,  J. — There  was  evidence  tending  to  show  that  the 
deceased  was  sane  when  he  shot  himself;  hence,  the  verdict  having 
been  directed,  it  must  be  assumed  upon  this  appeal  that  such  was 
the  fact.  Starting  from  this  basis,  the  argument  of  the  defendant 
is,  in  substance:  (i)  That  intentional  self-destruction  while  sane  is 
not  a  risk  covered  by  a  policy  of  life  insurance,  even  when  there  is 


home  by  way  of  Panama  and  Chagres,  without  the  United  States,  and  soon 
after  died.  Held,  that  the  policy  was  thereby  avoided,  although  there  was  then 
no  usually  traveled  route  by  Vera  Cruz,  and  although  he  returned  the  shortest 
and  safest  way."  {Syllabus.)  In  JVightiiii^ale  v.  Co.,  5  R.  I.  38,  the  court  says: 
"  Ii  is  admitted  that  the  late  Bishop  Henshaw  did,  without  consent  of  ihe 
defendant  company  issuing  this  policy,  '  first  had  and  indorsed  thereon,'  and 
between  the  ist  day  of  July  and  the  15th  day  of  October,  1852,  go  into  ihe  State 
of  Maryland,  a  portion  of  the  United  States  beyond  the  limits  of  constant  resi- 
dence permitted  by  the  policy,  and  there  remain  more  than  five  days,  to  wit, 
about  ten  days,  at  the  end  of  which  period,  and  about  the  20th  day  of  July  of 
that  year,  he  died.  The  holy  errand  on  which  he  went,  the  absence  of  all  con- 
nection between  his  going  and  remaining  and  the  cause  of  his  death,  are  not 
permitted  lo  swerve  our  judgment  from  the  legal  effect  of  so  plain  a  breach  of 
the  condition  of  this  policy,  upon  the  occurring  of  which  it  is,  by  its  own  terms. 
'  to  be  void,  and  all  payments  thereon  to  be  forfeited  to  the  company.'  "  In 
Mobile  Co.  v.  Walker,  58  Ala.  290.  "  the  term  residence,  as  employed  in  the  ques- 
tions propounded  to  the  assured,  was  intended  to  signify  the  place  of  perma- 
nent, rather  than  mere  temporary  abode;  in  the  sense  of  domicile,  rather  than 
of  mere  inhabitancv." 


TERMS   OF   THE    LIFE   INSURANCE    CONTRACT.  259 

no  clause  in. the  policy  specifically  exen)pting  the  company  from  lia- 
bility for  such  death;  (2)  the  incontestable  clause  does  not  cover 
such  a  death,  and,  even  if  it  be  held  to  do  so  by  its  terms,  such  a 
stipulation  would  be  void,  as  against  public  policy ;  (3)  intentional 
self-destructioa  while  sane  is  a  crime,  and  hence  the  stipulation 
providing  that  death  in  violation  of  law  is  not  a  risk  assumed  by  the 
company  defeats  recovery. 

Upon  the  first  proposition  reliance  is  placed  upon  the  recent 
decision  of  the  Suprem.-  Court  of  the  United  States  in  the  case  of 
Ritter  V.  Mut.  L.  Ins.  Co.,  169  U.  S.  139.  In  this  case  it  was  dis- 
tinctly held  that  intentional  self-destruction  by  the  assured  while 
sane  is  not  a  risk  covered  by  a  life  insurance  policy,  even  when  the 
policy  contains  no  exception  as  to  such  a  death; '  and  it  was  further 
said  that  such  a  risk  could  not  be  legally  covered  by  a  policy,  because 
it  would  be  against  public  policy  to  make  such  a  contract.  This 
was  an  action  by  the  executors  of  the  estate  of  the  assured  upon  a 
policy  payable  directly  to  his  executors,  administrators  and  assigns; 
and  there  was  much  evidence  tending  to  show  that  the  assured 
deliberately  effected  this,  and  a  large  amount  of  other  life  insurance, 
with  the  intention  of  committing  suicide,  and  thus  enriching  his 
estate  and  paying  his  debts.  Another  and  perhaps  the  only  other 
direct  adjudication  to  the  same  effect  is  the  decision  in  the  case  of 
Supreme  Commandery  K.  G.  R.  v.  Ainsworth,  -ji  Ala.  436.  The  prin- 
ciple upon  which  these  decisions  rest  is  thus  well  stated  in  the 
last-named  case:  "  Death,  the  risk  of  life  insurance,  the  event  upon 
which  the  insurance  money  is  payable,  is  certain  of  occurrence. 
The  uncertainty  of  the  time  of  its  occurrence  is  the  material  element 
and  consideration  of  the  contract.  It  cannot  be  in  the  contempla- 
tion of  the  parties  that  the  assured  by  his  own  criminal  act  shall 
deprive  the  contract  of  its  material  element  —  shall  vary  and  enlarge 
the  risk  and  hasten  the  day  of  payment." 

The  authorities  upon  which  these  decisions  are  principally  based 
consist  of  certain  expressions  of  opinion  contained  in  Hartman  v. 
Keystone  Ins.  Co..,  21  Pa.  St  466;  Moore  v.  IVoo/sey,  4  El.  &  Bl. 
243;  and  Arnicable  Soc.  v.  BoHand,  4  Bligh  (N.  S.),  194,  in  none  of 
which  cases,  however,  was  the  question  directly  in  issue.     Support 

'  "  When  the  policy  is  silent  as  to  suicide,  it  is  to  be  taken  that  the  subject  of 
the  insurance,  that  is,  the  life  of  the  insured,  shall  not  be  intentionally  and 
directly,  with  whatever  motive,  destroyed  by  him  when  in  sound  mind.  To 
hold  otherwise  is  to  say  that  the  occurrence  of  the  event  upon  the  happening 
of  which  the  company  undertook  to  pay,  was  intended  to  be  left  to  his  option. 
That  view  is  against  the  very  essence  of  the  contract."  —  Ritter  v.  Co.,  169  U. 
S.  139.  154- 


26o  THE   TERMS   OF   THE   L\SU RANGE   CONTRACT. 

for  the  proposition  is  also  drawn  from  the  well-established  principle 
of  the  law  of  fire  insurance,  that  if  the  insured  intentionally  set  fire 
to  the  property  insured  and  destroy  it,  he  cannot  recover  for  the 
loss.  It  is  certainly  not  to  be  denied  that  the  reasoning  in  favor  of 
the  proposition  is  cogent,  and,  were  the  question  a  new  one  in  the 
law,  the  argument  would  be  well-nigh  irresistible,  especially  where, 
as  in  the  Ritter  Case,  the  policy  runs  in  favor  of  the  estate  of  the 
insured,  and  the  proceeds  will  go  to  the  enrichment  of  such  estate, 
instead  of  to  other  beneficiaries.  But  it  is  by  no  means  a  new  ques- 
tion, and  there  are  numerous  authorities  which  directly  hold  that, 
where  life  insurance  is  effected  for  the  benefit  of  wife  or  children, 
suicide  while  sane  is  not  a  defense,  in  the  absence  of  a  condition  or 
exception  to  that  effect  in  the  policy.  Fitcli  v.  Am.  P.  L.  Ins.  Co.., 
59  N.  Y.  557;  Darrow  v.  Family  F.  Soc,  ii6  N.  Y.  537;  Patrick  v. 
Excelsior  L.  I?is.  Co.,  67  Barb.  202;  Afil/s  v.  Rebsiock,  29  Minn.  380; 
Kt-rr  V.  Mi?iii.  M.  B.  As  so.,  39  Minn.  174;  N.  W.  R.  &'  M.  A. 
Asso.  v.  Wanner,  24  111.  App.  357.  This  principle  was  stated' as  the 
law  in  McCoy  v.  N.  W.  Mut.  R.  Asso.,  92  Wis.  577,  although  it 
probably  was  not  directly  involved  in  that  case.  The  American 
text-books  which  treat  of  the  subject  very  generally  state  this  to  be 
the  law.  I  May,  Ins.  §  324;  Niblack,  Ben.  Soc.  &  Ace.  Ins.  §  156; 
3  Joyce,  Ins.  §  2653;  3  Am.  &  Eng.  Ency.  of  Law  (2d  ed.),  1016. 
While  these  text-book  citations  may  not  be  considered  as  very  con- 
vincing, they  certainly  tend  to  show  the  general  impression  prevail- 
ing among  the  legal  profession  upon  the  subject,  and  that  impression 
certainly  prevailed  in  the  Supreme  Court  of  the  United  States  when 
the  case  of  Life  Ins.  Co.  v.  Terry,  15  Wall.  580,  was  decided;  for  in 
that  case  Mr.  Justice  Hunt  refers  to  the  conixdixy  dictum  in  Hartman 
V.  Keystone  Ins.  Co  ,  21  Pa.  St.  466,  as  confessedly  unsound.  The  fact 
that  insurance  companies  have  almost  universally  deemed  it  neces- 
sary to  insert  in  their  policies  provisions  exempting  them  from  lia- 
bility in  case  of  suicide,  "  sane  or  insane,"  may  perhaps  also  be 
considered  as  showing  the  general  trend  of  opinion  upon  the  sub- 
ject in  insurance  circles;  but,  whether  this  deduction  is  to  be  prop- 
erly drawn  or  not,  we  think  it  certain  that  the  fact  that  life  itisurance 
policies  universally  contain  this  provision  is  of  weight  in  determin- 
ing the  construction  now  to  be  placed  upon  a  policy  which  omits  all 
specific  reference  to  suicide,  and  also  ostentatiously  contains  a 
clause  providing  that  it  shall  be  absolutely  incontestable  for  any 
cause  save  for  nonpayment  of  premiums  or  misstatement  of  age. 
What  would  an  applicant  for  insurance  be  entitled  to  think  was  the 
meaning  of  such  a  policy,  when  presented  to  him,  garnished  with 
the  usual  and  customary  commendations  of  the  average  solicitor  of 


TERMS   OF   THE    LIFE    INSURANCE   CONTRACT.  261 

insurance?  .Certainly  he  would  not  think  that  its  legal  effect  was 
the  same  as  that  of  a  policy  containing  the  usual  provisions  against 
suicide,  sane  or  insane. 

The  policy  before  us  was  originally  payable  to  the  administrators, 
executors,  or  assigns  of  Patterson;  but  within  a  few  days  it  was 
assigned,  with  the  consent  of  the  company,  to  the  plaintiffs,  his 
children,  and  so  remained.  After  this  assignment  it  was  no  longer 
a  policy  in  favor  of  Patterson's  estate,  but  in  favor  of  his  children, 
as  beneficiaries,  as  much  as  though  originally  made  payable  to  them. 
Under  the  decision  of  this  court  in  Foster  v.  Gile,  50  Wis.  603,  such 
a  beneficiary  has  an  actual,  subsisting  interest  in  the  policy,  subject 
to  the  right  of  the  insured,  who  has  paid  the  premiums,  to  vest  it 
elsewhere;  but,  until  such  action  by  the  assured,  the  interest  of  the 
beneficiary  is  such  a  vested,  subsisting  interest  as  would  pass  to  the 
administrator  of  the  beneficiary  in  case  of  his  death.  Such  being 
the  case,  it  falls  directly  within  the  principle  of  the  New  York  and 
Minnesota  cases  before  referred  to,  which  hold  that,  as  against  such 
a  beneficiary,  suicide  of  the  insured  while  sane  is  not  a  defense,  in 
the  absence  of  a  provision  in  the  policy.  Nor  would  the  application 
of  that  principle  to  this  case  necessarily  conflict  with  the  Ritter  Case, 
where  the  policy  was  in  favor  of  the  estate  of  the  insured.  It  may 
well  be  in  such  a  case  that  the  mtentional  suicide  of  the  insured 
while  sane  would  prevent  a  recovery  by  his  personal  representatives, 
and  yet  not  prevent  a  recovery  in  case  of  a  policy  in  favor  of  bene- 
ficiaries who  had  a  subsisting,  vested  interest  in  the  policy  at  the 
time  of  the  suicide,  and  who  could  not,  if  they  would,  prevent  the 
act  of  the  insured. 

In  determining  what  rule  should  be  adopted  by  this  court  in  the 
present  case,  there  are  numerous  considerations  which  deserve 
attention.  It  must  be  borne  in  mind  that  the  suicide  clause  has 
become  so  universal  in  policies  that  its  absence  at  once  attracts 
attention.  It  can  hardly  be  otherwise  than  that  the  agent  soliciting 
insurance  under  such  a  policy  as  this  would  at  once  call  attention  to 
its  apparent  liberality,  in  that  there  was  no  suicide  clause,  and, 
further,  that  there  was  in  addition  an  "  absolutely  incontestable  " 
clause;  and  the  average  laymen  (not  to  say  lav/yer),  in  looking  it 
over,  would  conclude  that  it  was  .in  fact  a  very  favorable  policy  to 
the  insured.  These  provisions  are  all  carefully  framed  by  the  insur- 
ance company,  and  expressly  framed  to  induce  people  to  insure;  and 
the  principle  is  familiar  and  just  that,  when  the  policy  is  capable  of 
two  meanings,  that  which  is  most  favorable  to  the  insured  is  always 
to  be  adopted.  Utter  v.  Travelers'  Ins.  Co.,  65  Mich.  545.  In  at 
least  one  state  (Missouri)  there  exists  a  statute  which  prohibits  the 


262  THE    TERMS   OF   THE    IXSURAXCE   CONTRACT. 

defense  of  suicide,  except  when  it  was  contemplated  at  the  time  of 
effecting  the  insurance,  and  makes  void  any  contrary  stipulation  in 
the  policy.  R.  S.  of  Mo.  1889,  §  5855.  This  statute  has  been 
enforced  by  the  courts  of  Missouri,  and  by  the  Circuit  Court  of 
Appeals  of  the  United  States,  without  apparent  question  as  to  its 
validity  on  the  ground  of  public  policy.  Keller  v.  Travelers  iin. 
Co.,  58  Mo.  App.  557;  Knights  Templar  ■^  M.  L.  I.  Co.  v.  Berr)\  4 
U.  S.  App.  353,  50  Fed.  Rep.  511.  Bearing  these  things  in  mind, 
and  while  conceding  the  strength  of  the  arguments  upon  public 
policy  on  which  the  Kilter  Case  is  based,  we  still  think,  in  view  of 
the  prior  decisions  above  cited  to  the  contrary  of  the  rule  there  laid 
down,  and  the  general  apparent  acquiescence  in  those  decisions  by 
the  courts  and  by  the  people,  that  we  ought  to  hold,  in  accordance 
with  those  decisions,  that,  in  a  case  where  third  persons  are  bene- 
ficiaries, intentional  suicide  of  the  insured  while  sane  does  not  avoid 
the  policy,  in  the  absence  of  any  provision  in  the  policy  to  that 
effect.  Whether  the  rule  would  apply  to  a  case  where  the  personal 
representatives  of  the  insured  were  bringing  the  action  for  the 
benefit  of  the  estate  of  the  insured  is  not  decided,  because  that  case 
is  not  before  us.     *     *     *  ' 

'  "  There  lias  been  much  discussion  in  adjudged  cases  as  to  the  effect  of  con- 
ditions in  life  insurance  policies  which  provide  that  the  policy  shall  be  void  if 
the  assured  comes  to  his  death  by  his  own  hand.  At  one  time  policies  pro- 
vided, generally,  that  they  should  be  void  in  case  of  death  by  "  suicide,"  or 
"  by  one's  own  hand,"  without  more.  It  was  held  that  these  terms  were 
synonymous,  and  conveyed  the  same  idea.  It  has  been  held  quite  generally 
by  the  courts  of  this  country  that  this  general  condition  in  a  policy  referred  to 
an  act  of  criminal  self-destruction,  which  did  not  apply  to  an  insane  person 
who  took  his  own  life. — Association  v.  IValler,  57  Ga.  533;  Hathaivay  v.  insur- 
ance Co.,  48  Vt.  335;  Insurance  Co.  v.  Graves,  6  Bush,  268;  Newton  v.  Insurance 
Co.,  76  N.  Y.  426;  Scheffer  v.  Insurance  Co.,  25  Minn.  534;  Insurance  Co.  v. 
Terry,  15  Wall.  580;  Insurance  Co.  v.  RoJel,  95  U.  S.  232;  Insurance  Co.  v.  Isett, 
74  Pa.  St.  176;  Insurance  Co.  v.  Moore,  34  Mich.  41;  Eastabrook  v.  Insurance  Co., 
54  Me.  224.  This  being  practically  the  settled  law  applicable  to  these  condi- 
tions, insurance  companies  adopted  a  more  specific  condition  as  to  liability  in 
cases  of  death  by  suicide,  and  there  are  a  number  of  cases  where  the  language 
of  the  policy  is  substantially  the  same  as  that  employed  in  the  policy  under 
consideration.  In  Bigelow  v.  Insurance  Co.,  93  U.  S.  284,  the  condition  in  the 
policy  was  that  it  should  be  void  if  the  insured  "  shall  die  by  suicide,  sane  or 
insane."  In  an  action  on  the  policy  the  defendant  pleaded  that  the  insured 
die  1  from  the  effect  of  a  pistol  wound,  inflicted  upon  his  person  by  his  own 
hand,  and  that  he  intended  by  this  means  to  destroy  his  life.  The  plaintiff, 
by  reply,  pleaded  that  the  insured,  when  he  inflicted  the  pistol  wound  upon  his 
person  by  his  own  hand,  was  of  unsound  mind,  and  wholly  unconscious  of  the 
act.  It  was  held  that  a  demurrer  to  the  replication  was  properly  sustained. 
Th ;   effect  of   the  holding   was  that  the  policy   was  void,    notwithstanding  the 


TERMS   OF   THE    LIFE   INSURANCE   CONTRACT.  263 

8.   Poison.' 


9.  Violation  of  Law.' 


self-destruction  was  accomplished  at  a  time  when  the  insured  was  wholly 
unconscious  of  the  act.  There  is  no  substantial  difference  between  that  case  and 
the  one  now  under  consideration."  —  Scarth  v.  Soc,  75  la.  346. 

In  Smith  v.  Soc,  123  N.  Y.  85,  recovery  upon  the  policy  was  not  allowed;  the 
insured,  when  he  took  out  the  policy  having  the  fraudulent  intent  to  commit 
suicide. 

What  Constitutes  Insanity. — "  This  case  is  governed  by  a  uniform  series 
of  decisions  of  this  courts  establishing  that  if  one  whose  life  is  insured,  inten- 
tionally kills  himself  when  his  reasoning  faculties  are  so  far  impaired  by 
insanity  thai  he  is  unable  to  understand  the  moral  character  of  his  act,  even  if 
he  does  understand  its  physical  nature,  consequence,  and  effect,  it  is  not  a 
'  suicide,'  or  '  self-destruction.'  or  '  dying  by  his  own  hand,'  within  the  meaning 
of  those  words  in  a  clause  excepting  such  risks  out  of  the  policy,  and  containing 
no  further  woids  expressly  extending  the  exemption  to  such  a  case.  Life  Ins. 
Co.  v.  Terry,  15  Wall.  580;  Bi:^ilowv.  Berkshire  Ins.  Co.,  93  U.  S.  284;  Insurance 
Co.  V.  Rodel,  95  U.  S.  232;  Manhattan  Ins.  Co.  v.  Broughton,  109  U.  S.  121 ;  Con- 
necticut Ins .  Co.  v.  Laihrop,  ill  U.  S.  612;  Accident  Ins.  Co  v.  Crandal,  120  U.  S. 
527."  —  Conn.  Life  Ins.  Co.  v.  Akens,  150  U.  S.  468,  473.  In  Van  Zandt  v.  Ins. 
Co.,  55  N.  Y.  169,  173,  the  court  states  the  English  rule  (citing  Borradaile  v. 
Hunter,  5  Man.  &  Gr.  639,  and  Clift  v.  Sclnvahc,  3  Man.  Gr.  &  Scott,  437),  as 
follows;  "According  to  those  decisions,  to  take  a  case  out  of  the  proviso,  the 
party  must  have  been  insane  to  such  a  degree  as  to  render  him  unconscious 
that  the  act  he  did  would  cause  his  death,  or  he  must  have  committed  it  under 
the  influence  of  some  insane  impulse  which  he  could  not  resist.  His  mind 
must  have  been  so  far  gone  that  it  was  not  moving  to  the  act.  It  is  not  suffi- 
cient that  his  moral  sense  was  so  impaired  as  to  deprive  the  act  of  its  criminal 
character."  The  court,  criticising  the  rule  adopted  by  the  U.  S.  Supreme 
Court,  says:'  "  In  the  practical  administration  of  justice,  in  cases  of  this 
description,  it  seems  to  us  a  dangerous  doctrine  to  hold  that  the  attention  of 
the  jury  should  be  directed  principally  to  the  degree  of  appreciation  which  the 
deceased  had  of  the  moral  nature  of  his  act,  and  that  this  question,  most  specu- 
lative and  difficult  of  solution,  should  be  made  the  test  by  which  it  should  be 
delerLuined  whether  he  had  knowingly  and  voluntarily  violated  the  condition 
of  his  insurance.  The  real  question  is,  whether  he  did  the  act  consciously  and 
voluntarily,  or  whether,  from  disease,  his  mind  had  ceased  to  control  his 
nctions.  Supposing  a  man  to  be  in  possession  of  his  will  and  of  the  ordinary 
mental  faculties  necessary  for  self-preservation,  but  that  h's  mind  has  become 
so  morbidly  diseased  on  the  subject  of  suicide  that  he  cannot  appreciate  its 
moral  wrong,  and  in  this  condition  of  mind  he  takes  his  own  life  voluntarily  and 
intentionally  —  perhaps  with  the  very  object  of  securing  lo  his  family  the  bene- 
fits of  an  insurance  upon  his  life  —  it  is  difficult  to  say  that  this  is  not  a  death 
by  his  own  hand  within  the  meaning  of  the  policy." 

'  For  cases  upon  this  subject,  see  Terms  of  the  Accident  Insurance  Contract, 
post.  p.  287. 

*  For  cases  upon  this  subject,  see  Terms  of  the  Accident  Insurance  Contract 
fast,  p.  301. 


264  THE   TERMS    OF   THE    INSURANXE    CONTRACT. 

10.   Lncontestahility. 

WRIGHT  2'.  MUTUAL   BExNEFIT    ASSOC. 

iiS  N.  Y.  237.  —  1890. 

Potter,  J.  —  This  is  an  action  to  recover  of  the  defendant  the 
amount  it  agreed  to  pay  under  a  policy  or  certificate  insuring  the 
life  of  Charles  F.  Wright.  Upon  the  trial,  after  the  plaintiff  had 
introduced  the  necessary  proofs  to  entitle  her  to  a  recovery,  the 
defendant  offered  to  prove  as  a  defense  to  the  action  that  the 
deceased,  Charles  F.  Wright,  and  Byron  D.  Houghton,  the  bene- 
ficiary named  in  the  policy,  for  the  purpose  of  obtaining  the  policy 
and  of  defrauding  the  defendant,  falsely  represented  to  the  defend- 
ant that  Wright,  the  insured,  was  not  then  suffering  and  never  had 
been  suffering,  from  certain  diseases  which  had  seriously  impaired 
his  health,  for  the  purpose  of  inducing  and  by  means  whereof 
defendant  was  induced  to  issue  the  policy  insuring  the  life  of  said 
Wright,  and  that  such  representations  were  false,  etc.  This  evi- 
dence was  objected  to  by  the  plaintiff,  that  such  proof  was  inad- 
missible under  the  provision  of  the  policy;  "  that  no  question  as  to 
the  validity  of  an  application  or  certificate  of  membership  shall  be 
raised  unless  such  question  be  raised  within  the  first  two  years  from 
and  after  the  date  of  such  certificate  of  membership,  and  during  the 
life  of  the  member  therein  named;"  and  the  objection  was  sus- 
tained, and  defendant  excepted.  The  defendant  also  offered  to 
show  that  the  beneficiary,  Houghton,  had  no  insurable  interest  in 
the  life  of  tiie  insured ;  in  short,  that  it  was  a  speculative  and  fraud- 
ulent scheme,  devised  and  practiced  by  Houghton  to  secure  an 
advantage  to  himself  upon  the  life  of  Wright,  which  must  soon  ter- 
minate from  the  diseases  he  was  then  afiflicted  with.  This  was  also 
objected  to  by  the  plaintiff,  and  excluded  by  the  court,  and  defend- 
ant excepted;  the  court  holding  that  the  defendant  could  not  show 
any  such  thing,  unless  during  the  life  of  the  assured,  or  during  the 
period  of  two  years  from  the  date  of  the  policy,  such  question  had 
been  raised.' 

These  rulings  present  the  main  question  upon  this  appeal,  and, 
inasmuch  as  I  have  reached  the  conclusion  that  the  judgment 
should  be  affirmed,  there  is  but  little,  if  any,  occasion  to  add  any- 
thing to  the  reasons  contained  in  the  opinion  of  the  General  Term 
affirming  the  judgment  of  the  trial  court  in  this  case.  43  Hun,  61. 
There  does  not  seem  to  be  room  for  any  doubt  in  relation  to  the 

'  Contra,  as  to  the  defense  of  lack  of  insurable  interest  in  incontestable 
policies,  Anctil  \ .  Ins.  Ca.  [1899]  .A.  C.  609  {ante  p.  59  tiote). 


TERMS   OF   THE    LIFE   INSURANCE   CONTRACT.  265 

meaning  of_  the  stipulation  referred  to.  The  defendant's  counsel 
does  not  contend  that  the  language  of  the  stipulation  or  waiver  is 
not  plain  and  comprehensive  of  everything  which  can  constitute  a 
defense,  nor  that  the  stipulation,  though  indorsed  upon  the  cer- 
tificate, does  not  form  a  part  of  the  contract  of  insurance.  But  he 
argues,  from  certain  supposed  analogies  to  stipulations  releasmg 
carriers  from  liability,  and  which  have  been  held  not  to  exempt  the 
carrier  from  liability  for  negligence,  that  it  must  have  been  intended 
between  the  defendant  and  the  insured  to  except  the  defense  of 
fraud  from  the  operation  of  the  stipulation  in  question.  Mynardv. 
Railroad  Co. ^  71  N.  Y.  180;  Holsapple  \.  Railroad  Co. ^  86  N.  Y.  275. 
It  does  not  seem  to  me  that  there  is  any  analogy  between  the  two 
classes  of  liability,  and  nothing  is  more  misleading  than  an  assumed 
analogy.  The  liability  of  a  common  carrier  of  persons  or  property 
for  injury  or  loss  was  adopted  at  a  very  early  period,  in  view  of  the 
peculiar  exigencies  of  the  carrying  trade,  as  a  rule  of  public  policy. 
The  degree  and  extent  of  the  liability  of  the  carrier  for  negligence 
was  fixed  by  law,  and  not  by  the  terms  of  a  contract  between  the 
parties.  There  were  numerous  contingencies  incident  to  the  carry- 
ing business  other  than  the  negligence  of  the  carrier,  which  might 
result  in  loss  or  injury  to  the  person  or  goods  carried,  and  for 
which  the  liability  of  the  carrier  would  depend  upon  the  facts  to  be 
established  upon  a  trial.  It  might  well  be  held,  in  construing  an 
agreem^ent  of  exemption  in  general  terms,  that  its  office  and  effect 
was  to  relieve  from  those  grounds  of  liability  which  depended  upon 
the  evidence,  and  not  the  liability  which  was  fixsd  by  law.  The  rules 
laid  down  in  the  cases  referred  to  by  the  appellant's  counsel  is  merely 
a  rule  of  the  construction  of  the  terms  and  effect  of  an  agreement. 
It  by  no  means  holds  that  liability  for  negligence  may  not  be  stip- 
ulated away,  for  the  contrary  has  been  repeatedly  held,  but  the 
terms  of  the  stipulation  in  those  cases  did  not  provide  exemption 
from  liability  for  negligence.  The  case  under  consideration  is  an 
alleged  fraud  in  making  a  private  contract  between  the  parties  to  it. 
The  contract  contains  a  great  number  of  material  representations 
in  relation  to  the  past  and  present  condition  of  the  insured,  and  of 
course  they  are  variable  with  every  applicant  for  insurance  and  every 
person  insured.  Such  representations,  if  untrue,  constitute  a  breach 
of  warranty  which  will  avoid  the  contract  of  insurance.  If  the  rep- 
resentations are  known  by  the  party  making  them  to  be  untrue  when 
made,  they  would  also  constitute  a  fraud,  and  avoid  the  contract  of 
insurance.  The  difference  between  the  representations  and  the 
proof  of  them  upon  a  trial  to  avoid  the  contract  would  be  only  the 
fact  whether  the  party  knew  the  representation  was  false  when  he 


.?66  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

made  it.      It  is  to  be  presumed  that  the  defendant  had  some  purpose 
when  it  offered  to  the  insured  a  contract  containing  the  stipulation, 
and   that   the  stipulation  itself  had   some   meaning.      The   court  is 
asked   to   hold   that  the   parties  to  the  stipulation  understood  (for 
unless  the  insured  so  understood  the  stipulation  the  defendant  was 
practicing  a  fraud  'upon   him)  that,  while  the  stipulation   embraced 
all  representations  that  were  untrue,  it  did   not  embrace  the  same 
representations  if  known  by  the  party  making  them   to  be  untrue. 
The  practical  difference  or  effect  of  this  would  be  that  upon  a  trial 
to  enforce  the    contract    the    proofs    of    the    representation,    their 
materiality  and  untruth,  would  have  to  be  made  all   the  same;  but 
the  stipulation  would  come  in  as  a  defense   to  all   representations, 
save  those  the  insured  knew  to  be  false.     While  I  might,  perhaps, 
entertain  the  idea  that  the  insurer  so  understood  the  stipulation,  I 
am  very  confident  that  the  insured   did   not  so   understand   it.      It 
seems  to  me  the  analogy  is  based  upon  an  entire  misconception  cf 
the  object  and  meaning  of  the  stipulation.     It  is  not  a  stipulation 
absolute    to   waive    all    defenses,  and    to    condone  fraud.     On    the 
contrary,  it  recognizes  fraud  and  all  other  defenses,  but  it  provides 
ample  time  and  opportunity  within  which  they  may  be,  but  beyond 
which  they  may   not  be,  established.      It   is   in   the   nature  of,  and 
serves  a  similar  purpose  as  statutes  of  limitations   and  repose,  the 
wisdom  of  which  is  apparent  to  all  reasonable  minds.      It  is  exempli- 
fied in  the  statute  giving  a  certain  period  after  the  discovery  of  a 
fraud  in  which  to  apply  for  redress  on  account  of  it,  and  in  the  law 
requiring   prompt  application  after  its  discovery,  if   one  would   be 
relieved  from  a  contract  infected  with  fraud.     The  parties  to  a  con- 
tract may  provide  for  a  shorter  limitation  thereon  than  that  fixed  by 
law,  and  such  an  agreement  is  in  accord  with  the  policy  of  statutes 
of  that  character.      Wilkinson  v.  Insurance  Co.,  72   N.  Y.   499,    502. 
No  doubt  the  defendant  held  it  out  as  an  inducement  to  insurance 
by  removing  the  hesitation  in  the  minds  of  many  prudent  men  against 
paying  ill-afforded  premiums  for  a  series  of  years;   when  in  the  end, 
and  after  the  payment  of  premiums,  the  death  of  the  insured,  and 
the  loss  of  his  and  the  testimony  of  others,  the  claimant,  instead 
of  receiving  the  promised  insurance,  may  be  met  by  an  expensive  law- 
suit to  determine  that  the  insurance  which  the  deceased  has  been  pay- 
ing for  through  many  years   has   not,  and   never  had,  an  existence 
except  in  name.     While  fraud  is  obnoxious,  and  should  justly  vitiate 
all  contracts,  the  courts  should  exercise  care  that  fraud  and  imposition 
should  not  be  successful  in  annulling  an  agreement  to  the  effect  that 
if  cause  be  not  found  and  charged  within  a  reasonable  and  specific 
time,    establishing  the  invalidity  of  the  contract  of    insurance,    it 


TERMS   OF   THE    LIFE    INSURANCE   CONTRACT.  267 

should  thereafter  be  treated  as  valid.  Hence  I  fail  to  perceive  any 
error  in  the  disposition  made  of  this  question  in  the  court 
below.     *     *     * 

I  think  the  judgment  should  be  affirmed,  with  costs.     All  concur, 
Haight,  J.,  in  result;    Follett,  C.  J.,  not  sitting. 


Given,  J.,  in  WELCH  v.  UNION  CENTRAL  LIFE  INS.  CO. 

108  Ia.  224,  229,  230.  —  1S99. 

Incontestable  clauses  in  policies  of  life  insuran-:e  are  variable, 
some  being  absolute  in  form  (that  is,  providing  that  the  policy  is 
incontestable  at  any  time,  or  for  any  cause),  others  are  qualified 
(as,  that  they  are  incontestable  after  a  certain  time,  or  after  the 
death  of  the  assured,  or  for  other  than  particular  causes  named)- 
The  clause  under  consideration  is  of  the  latter  class,  and  is  among 
those  enumerated  on  the  second  page  of  the  policy,  and  made  a 
part  thereof.  It  is  that,  "  except  as  hereinbefore  provided,  this 
policy  shall  be  incontestable  for  any  cause  e.xcept  misstatement  of 

VII.  Another,  and  probably  more  conclusive,  reason  why  this 
defense  may  be  asserted,  is  that  fraud  vitiates  every  contract  into 
which  it  enters.  In  Bliss  Insurance,  §  247,  it  is  said:  "  An  agree- 
ment that  an  insurer  will  not  raise  any  objection,  even  in  case  of 
direct  personal  fraud,  is  a  void  condition.  It  has  even  been  ques- 
tioned whether  it  would  not  be  sufficient  to  render  the  policy  itself 
wholly  void  ab  initio,  as  an  illegal  contract.  In  these  cases,  then, 
fraud,  if  not  mentioned,  must  be  assumed  to  be  excluded,  since  that 
construction  is  always  to  be  preferred  which  will  support  a  contract, 
and  it  is  never  to  be  supposed  that  the  parties  to  it  intend  an  illegal 
stipulation  where  a  lawful  meaning  can  be  giv^en  to  their  words. 
Of  course,  this  construction  cannot  make  the  policy  really  indis- 
putable, for  it  leaves  open  the  question  whether  the  statement  or 
oirlission  complained  of  was  fraudulent  or  not,  and  also  what  is  the 
true  meaning  or  construction  of  the  policy  itself."  This  statement 
of  the  law  is  fully  supported  in  all  of  a  large  number  of  cases  which 
have  been  examined,  and  disputed  in  none.  There  are  cases  where- 
in the  policy  provided  that  it  should  be  incontestable  for  any  cause, 
or  for  certain  causes,  after  a  specified  length  of  time,  and  others 
providing  that  the  policy  should  be  incontestable  after  the  death  of 
the  assured.  Such  provisions  are  held  to  be  in  the  nature  of  a 
statute  of  limitation  or  repose,  and  that,  as  the  parties  may  stipulate 
as  to  the  time  when  action  may  be  brought,  so  they  may  stipulate 


268  THE    TERMS   OF   THE    INSURANCE   CONTRACT. 

as  to  the  time  within  which  certain  defenses  may  be  asserted. 
Such  stipulation  did  not  condone  the  fraud,  but  limited  the  insurer 
to  a  time  within  which  it  might  assert  the  fraud  as  against  the  con- 
tract. In  these  cases  the  right  to  defend  on  the  ground  of  fraud 
within  the  time  agreed  upon  is  recognized  Of  this  class  of  cases 
we  refer  to  Wright  v.  Association,  43  Hun,  61  (affirmed  118  N.  Y. 
237);  Association  v.  Robinson,  104  Ga.  256,  30  S.  E.  Rep.  919.  An 
able  article  upon  this  subject,  in  which  the  leading  cases  are  referred 
to,  will  be  found  in  45  Centra!  Law  J.  425.  Our  conclusion  is  that 
the  court  erred  in  sustaining  ai)pellee"s  motion  for  a  verdict.' 


II.     NOX-FURFEITURE. 

KNAPP  V.  HOMEOPATHIC  MUTUAL  LIFE  INS.  CO. 

117  U.  S.  411.  —  1886. 

Action  upon  a  policy  of  life  insurance. 

Mr.  Justice  Gray.  *  *  *  The  decision  *  *  *  depends 
upon  the  true  construction  of  the  non-forfeiture  clause  in  the  policy. 

The  single  purpose  of  this  clause  is  that,  after  two  annual  pre- 
miums shall  have  been  paid,  a  failure  to  pay  any  subsequent  pre- 
mium shall  not  have  the  effect  of  avoiding  the  whole  insurance, 
but  the  assured  shall  have  the  right  to  an  insurance  for  such  a  sum 
and  such  a  time  as  the  premiums  already  paid  would  equitably  cover. 
The  policy  does  not  declare  that  it  shall  continue  of  itself,  without 
any  act  of  the  assured.  On  the  contrary,  it  stipulates  that  "  the 
party  insured  shall  be  entitled  to  have  it  continue  in  force  for  a 
period  to  be  determined  "  by  ascertaining,  according  to  certain 
rules,  the  net  value  of  the  policy  at  the  time  of  failure  to  pay  a  pre- 

'  The  above  quotation  from  Bliss  is  by  him  quoted  from  and  credited  to  Bun- 
yen's  Law  of  Life  Assurance,  p.  88.  Bliss  cites  as  in  accord  with  Bunyon, 
Wheelton  v.  Hardisty,  8  E.  &  B.  232,  and  In  re  Gcu.  Prov.  Life  Assoc.  Co.,  i8 
Weekly  Reporter,  396,  in  which  latter  case  the  policy  was  indisputable,  and 
admitted  on  the  face  of  it,  the  truth  of  the  statements  in  the  proposal,  yet  it 
was  held  void  for  fraudulent  concealment;  the  court  not  even  discussing  the 
provision  as  to  incontestability. 

Some  states  have  passed  statutes  respecting  the  incontestability  of  policies. 
See  the  note  in  42  L.  R.  A.  257;  and,  for  example,  the  Ohio  provision  (g  3.626 
Rev.  St.  Ohio)  which  reads-  "All  companies,  after  having  received  three 
annual  premiums  on  any  policy  issued  on  the  life  of  any  person  in  this  state, 
are  estopped  from  defending  upon  any  other  ground  than  fraud,  against  any 
claim  arising  upon  such  policy  by  reason  of  any  errors,  omissions,  or  misstate- 
ments of  the  assured,  in  any  application  made  by  such  assured,  on  which  the 
policy  was  issued,  except  as  to  age." 


TERMS   OF   THE   LIFE   INSURANCE    CONTRACT.  269 

miuni,  and  making  the  amount  of  that  value,  considered  as  a  single 
premium,  the  basis  for  determining  the  lime  for  which  there  shall 
be  a  temporary  insurance  for  the  full  amount  of  the  original  policy. 
It  then  prescribes  an  alternative  by  which  the  party  insured,  "  at 
his,  option,  may  receive  a  paid-up  policy  for  the  full  amount  of  pre- 
mium paid."  In  short,  the  forfeiture  of  the  policy,  by  a  failure 
to  pay  any  premium  after  the  first  two,  is  not  absolute,  but 
qualified;  and  the  party  insured  is  entitled  to  be  insured  according 
to  the  sum  already  paid  in  premiums,  either  for  the  full  amount  of 
the  original  policy,  so  long  as  that  sum  would  pay  for  it,  or  else  for 
the  full  term  of  the  original  policy  for  such  amount  as  that  sum 
would  pay  for. 

Then  follows  the  proviso:  "  that  unless  this  policy  shall  be  sur- 
rendered and  such  paid-up  policy  shall  be  applied  for  within  ninety 
days  after  such  nonpayment  as  aforesaid,  then  this  policy  shall  be 
void  and  of  no  effect."  It  is  contended  on  behalf  of  the  plaintiff, 
that  the  words  "  such  paid-up  policy  "  show  that  this  provision 
refers  only  to  a  new  insurance  determined  by  the  second  method, 
that  is.  for  the  full  term  of  the  original  policy,  and  for  an  amount 
depending  upon  the  sum  already  paid  in  premiums;  and  that  if  the 
assured  does  not  seasonably  apply  for  such  an  insurance,  she  still 
remains  irjsured  for  the  full  amount  for  a  time  computed  according 
to  the  sum  paid.  But  the  proviso  does  not  say  that,  upon  a  failure 
to  surrender  the  original  policy  and  to  apply  for  a  paid-up  policy, 
the  original  policy  shall  stand  good  for  a  temporary  insurance;  but 
that  it  "  shall  be  void  and  of  no  effect."  The  result  of  either  of  the 
two  methods  already  prescribed,  for  determining  the  extent  of  the 
insurance,  is  a  paid-up  policy.  According  to  either  method,  there 
is  to  be  no  further  payment  of  premium,  nor  is  the  original  policy 
continued  in  force;  but  the  assured  is  to  have  the  benefit  of  the  sum 
already  paid  in  premiums,  by  being  insured,  either  for  the  amount 
of  the  original  policy  for  a  time  to  be  determined,  or  for  the  time 
of  the  original  policy  for  an  amount  to  be  determined.  Taking 
the  whole  clause  together,  it  is  clear  that  the  assured  is  to  have  the 
benefit  of  that  sum  in  one  of  two  ways  at  her  election,  and  that 
election  must  be  made  within  a  certain  time.  As  that  time  expired 
without  any  election,  or  any  excuse  for  not  making  one,  the  for- 
feiture became  complete  under  the  express  provisions  of  the  policy, 
and  the  Circuit  Court  rightly  held  that  the  action  could  not  be 
maintained.  Judgment  affirmed.' 

'  Some  states  provide  by  statute  against  forfeiture.  Tlie  following  statute  is 
representative:  "*  *  *  All  life  insurance  companies,  authorized  toirans- 
art   business   in   this   state,  shall    provide   in    their   policies  that,  after  three  or 


2/0  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

V.  Term^  of  the  Accident  Insurance  Contract. 
I.    Wha  r  IS  AN  Accident. 

LOVELACE  r.  TRAVELERS'    PROTECTIVE  ASSOC. 

126  Mo.  104.  —  1894. 

Action  upon  a  benefit  certificate  issued  by  the  defendant.  Judg- 
ment f  )r  plaintiff;  defendant  appeals.  The  contract  sued  upon  was 
cont.ii.ied  in  the  certificate  and  certain  parts  of  the  constitution  of 
the  defendant.  The  c  )iistitation  provided  that  "  four  thousand 
dollars  shall  be  paid  to  the  heirs  of  any  deceased  member  in  case  of 
death  by  accident." 

Barclay,  J  —  This  is  an  action  upoa  a  benefit  certificate,  in  the 
nature  of  ai  insurance  policy,  issued  to  Charles  H.  Lovelace,  by  the 
Travelers'  Protective  Association  of  America,  the  defendant,  a 
benevolent  association  incorporated  under  the  laws  of  Missouri. 
The  pleadings  need  not  be  recited,  as  no  point  is  raised  touching 
the  formal  presentation  of  the  case.     Counsel  for  both  parties,  with 


more  annual  piemiums  have  been  paid  upon  a  polic}'  of  life  insurance,  and 
default  is  made  in  payment  of  any  subsequent  premiums  wiien  due,  then  not- 
withstanding such  default,  the  company  shall  convert  the  same  into  a  paid-up 
policy  for  as  many  cJollars  as  the  value  of  such  policy  will  purchase,  to  be 
determined  by  the  table  of  surrender  values  in  use  by  such  company  at  the 
time  of  the  issue  of  policy,  which  shall  be  not  less  than  the  full  net  value  of 
the  policy  per  actuaries'  experience  table  of  mortality,  four  per  cent,  interest; 
provided.  That  the  application  be  made  in  writing  for  such  paid-up  policy  by  the 
assured  within  six  months  after  default  in  the  paympnt  of  premiums  shall  first 
have  been  made."  —  Mill's  Ann.  St.  of  Colorado,  §  2223. 

A  question  upon  which  there  is  a  conflict  of  authority  is  the  extent  to  which 
a  paid-up  policy  issued  pursuant  to  the  nonfoifeiture  clause  of  the  original 
policy  is  affected  by  the  forfeiture  clause  in  the  original  policy.  In  Bruce  v. 
Ins.  Co.,  58  Vt.  253,  th;  court  says:  "  The  annual  premium  payable  on  Bruce's 
policy  in  advance  was  $104.86.  Under  the  rules  of  the  company  this  could  be 
paid  in  cash,  or  one-half  in  cash  and  the  other  half  by  a  note  running  one  year, 
the  interest  thereon  being  paid  in  advance.  Rruce  paid  his  annual  premiums 
on  the  half-cash  and  half-note  plan  for  four  years,  and  then  claimed  a  paid-up 
policy  for  four-tenths  of  the  sum  insured,  *  *  *  When  the  policy  was 
issued  it  provided  in  its  third  condition,  that  '  if  the  assured  shall  not  pay  the 
said  annual  premiums  on  or  before  noon  of  the  several  days  hereinbefore  men- 
tioned for  the  payment  of  the  same  and  the  interest  annually  in  advance  on 
any  outstanding  premium  notes  which  may  he  given  for  any  portion  thereof  or 
shall  not  pay  at  maturitv  any  notes  or  obligations  given  for  the  cash  poriion  of 
any  premium  or  part  thereof,  then  and  in  every  such  case,  this  policy  shall 
cease  and  determine,  and  said  company  shall  not  be  liable  for  the  payment  of 
the  sum  insured  or  anv  part  thereof,  except  as  hereinafter  provided.'  The 
fourth  condition  then  follows:     '  Thai   if,  after  the  receipt  by  this  company  of 


TERMS   OF   THE    ACCIDENT   INSURANCE   CONTRACT.         2/1 

commendable  frankness  and  brevity,  have  put  the  material  facts 
into  comjabt  form  to  facilitate  the  solution  of  the  controversy  It 
was  submitted  to  the  trial  judge,  without  a  jury,  upon  an  agreed 
stateme  It  and  depositions.  The  only  question  now  urged  is  a  ques- 
tion of  law.  Mr.  Lovelace  was  a  member  in  good  standing  in  the 
defendant  association  when  he  met  his  death,  August  8,  1892.  The 
plaintiff  is  his  mother,  the  beneficiary  in  his  membership  certificate. 
The  contract  of  insurance  is  contained  in  the  certificate,  and  in 
parts  of  the  constitution  of  the  association,  which,  counsel  mutually 
agree,  control  the  issue  of  the  litigation.  In  the  statement  intro- 
ducing the  report  of  the  case  copies  of  these  documents  are  given. 
No  point  is  raised  touching  proofs  of  loss,  notice,  or  any  formal 
matter.  The  defendant  meets  the  case  broadly  on  its  merits.  The 
decisive  question  before  us  is,  was  the  death  of  the  assured  an 
"  accident,"  within  the  true  meaning  of  that  term  as  used  in  the 
contract  of  insurance?  That  question  was  presented  ty  an  instruc- 
tion that,  under  the  evidence,  plaintiff  was  not  entitled  to  recover, 
which  the  trial  court  refused  to  give.  On  the  contrary,  the  court 
found  for  the  plaintiff,  and  gave  judgment  accordingly  for  $4, 1 19.30 

two  or  more  annual  premiums  upon  this  policy,  default  shall  be  made  in 
the  payment  of  any  subsequent  premium  when  due,  then,  notwithstanding 
such  default,  this  company  will  convert  this  policy  into  a  paid-up  policy  for  as 
many  tenth  parts  of  the  sum  originally  insured  as  there  shall  have  been  com- 
plete annual  premiums  paid  when  such  default  shall  be  made.'  *  *  *  The 
very  end  aimed  at  when  offering  and  receiving  the  reduced  or  paid-up  policy 
is,  as  the  company's  circular  declares,  to  obviate  '  all  possible  danger  of  loss.' 
The  paid-up  policy  issues  as  a  redemption  from  forfeiture  of  the  original  policy 
which  otherwise  would  '  cease  and  determine,'  for  nonpayment  of  premiums. 
It  can  issue  only  in  case  two  full  premiums  have  been  paid  and  if  so  many 
have  been  paid,  the  right  to  it  is  given  to  the  policy  holder  by  the  original 
policy  itself.  Thus  his  right  to  it  is  a  contract  right  that  inheres  in  the  original 
policy.  When  issued  it  is  not  itself  subject  to  forfeiture  for  further  nonpay- 
ment ofpreiniams.  If  any  are  payable  in  cash,  notes,  or  interest,  the  company 
must  stand  for  their  collection  on  the  promise  of  the  policy  holder  to  pay.  If 
the  paid-up  policy  could  be  forfeited  for  further  nonpayment  of  premiums,  it 
becomes  a  delusion  and  a  snare.  The  policy  holder  is  no  better  off  than  before, 
so  far  as  the  risk  of  forfeiture  is  concerned.  May,  Ins.,  §§  345,  363.  The 
paid-up  policy  issues  for  so  many  tenths  of  the  sum  insured  as  annual  pay- 
ments have  been  made  and  is  based  on  the  theory  that  insurance  to  such  an 
amount  has  been  fully  paid  for."  Accord,  Cowles  v.  Co.,  63  N.  H.  300:  "  The 
original  contract  did  no)  make  the  nonpayment  forfeiture  clause  applicable  to 
the  promised  'paid-up'  policy  into  which  the  original  could  be  converted." 
Contra,  Hohnanv.  Co.,  54  Conn.  195,  but  the  court  expressly  restricts  its  decision 
to  the  precise  question  "  whether  the  paid-up  policy  involved  in  this  suit  con- 
tains  a  provision  whereby  the  failure  to  pay  interest  has  accomplished  the  for- 
feiture of  the  policy." 


2^2  THE   TERMS   OF   THE    IXSURANXE   CONTRACT. 

(which  includetl  some  interest).  Defendant  then  apjiealed,  after  the 
usual  preliminaries. 

The  following  facts  show  the  circumstances  of  the  death  of  Mr. 
Lovelace:  He  w^as  a  commercial  traveler.  On  the  5th  day  of 
August,  1892,  he  came  as  a  guest  to  the  hotel  in  Hazelhurst,  Miss. 
He  was  a  friend  of  the  proprietor,  and  spoke  to  some  member  of  the 
latter's  family  on  the  porch  of  the  hotel  before  encering  the  office. 
Another  rnan  named  Graves  was  in  the  office  of  the  hotel,  making 
more  or  le'ss  noise,  and  cursing  at  times,  when  Lovelace  arrived, 
about  half-past  eleven  o'clock  at  night.  The  only  witness  besides 
Graves  who  saw  the  killing  was  one  Scott.  From  his  testimony  it 
seems  that  that  night  the  proprietor,  Mr.  Brown,  was  sick,  and 
there  was  no  one  in  charge  of  the  office.  Scoti  was  putting  in  the 
chairs  from  the  porch,  when  Lovelace  walked  in  and  said,  "Who 
has  got  charge  of  the  office  to-night?"  Scott  answered,  "  No  one," 
and  that  he  was  going  to  bed.  Lovelace  then  said,  "  It  looks  like 
somebody  ought  to  be  about  it;"  and  Lovelace  then  turned  to 
Graves,  and  said,  "  Look  here,  young  man,  you  have  got  to  get  out 
of  here,  drinking  and  cursing  that  way,"  and  Graves  replied,  "  What 
have  you  got  to  do  with  it?"  Lovelace  answered,  "  I  am  a  guest 
at  the  hotel,  and  I  think  a  heap  of  the  family;  and  I  think,  in  the 
absence  of  Mr.  Brown,  it  is  sorter  my  duty  to  see  after  things." 
Graves  said,  "  You  had  better  put  me  out.  '  Lovelace  replied,  "  I 
will  do  it  in  a  pair  of  minutes,"  and  Graves  said,  with  an  oath,  he 
would  like  to  see  him  (Lovelace)  put  him  out.     Lovelace  said;  "  I 

will   do   that quick."     Scott  then   walked   between   them,  and 

separated  them.  Lovelace  started  upstairs,  but  it  seems  that  he 
turned  again,  and  went  back  to  the  register.  Lovelace  then  said, 
with  an  oath,  "  Don't  you  shake  your  hand  in  my  face."  (Graves 
had  made  a  gesture  which  Lovelace  interpreted  as  he  stated.)  They 
were  then  a  few  feet  apart.  Graves  replied,  "  You  put  me  out. 
You  have  not  got  any  more  to  do  with  this  than  I  have."  Lovelace 
then  declared  he  would  slap  Graves,  and  applied  an  opprobrious 
epithet  to  him.  Lovelace  then  slapped  and  pushed  Graves  back 
until  he  struck  the  wall  or  door,  which  was  closed,  and,  whilst  they 
were  thus  together.  Graves  drew  a  pistol  from  his  pocket,  and  shot 
Lovelace  several  times,  in  consequence  of  which  he  afterwards  died. 
Lovelace  weighed  175  pounds.  He  would  have  pushed  Graves,  who 
was  much  lighter  and  smaller,  out  of  the  door,  if  it  had  been  open. 
Lovelace  did  not  know  Graves  at  the  time,  for  the  next  day  he  asked 
what  boy  that  was  that  shot  him. 

The  foregoing  gives  a  sufficient  description  of  the  scene,  as 
defendant  claims  it  occurred.     The  substance  of  the  contention  on 


TERMS   OF   THE   ACCIDENT   INSURANCE    CONTRACT.         273 

taac  side  is  that  Mr.  Lovelace  lost  his  life  at  the  hands  of  Graves  in 
a  fight  with  "the  latter,  brought  on  by  the  language  and  acts  of  the 
former.      It   was   not  claimed,    however,    that   Lovelace   knew  that 
Graves  was  armed  when  the  difficulty  began.     The  defendant  asserts 
that  "  it  is  not  an  accidental  killing,  such  as  to  make  the  defendant 
liable,  where  the  death  was  the  result  of  a  rencounter,  or  where  the 
party  killed   was  the  voluntary  agent  in  bringing  on   the  difficulty 
resulting  in   his  death,  or  placed  himself  in  such  a  position  as  to 
induce  it."     On  the  other  hand,  the  plaint'ff  insists  that  the  occur- 
rence was  an  "  accident."     The  contract  in  this  case  is  to  be  inter- 
preted so  as  to  give  effect  to  the  intention  of  the  parties,  as  expressed 
by  the  language  they  have  used.     That  intention  is,  moreover,  to 
be  construed  as  the  reasonable  and  natural  one  imported  by  their 
words.     Ruth.   Inst.    (2d  Am.  ed.),  p.  413.     "  In  case  of  death  by 
accident  "  is  the  language  immediately  in  view.     In  the  same  con- 
tract we  note   that  the  defendant  was  to  pay  $100  "  in  case  of  his 
death   from   natural   causes."     The   form   of   the   contract  is   very 
simple.     It  is  free   from  those  limiting  terms  which,  in  two  of  the 
three   cases   cited  by  the  defendant,  formed  the  basis  of  the  judg- 
ments therein.     We  are  merely  called  on  to  say  whether  his  death 
was  by   "accident,"  within   the  intention  of  these  parties.     They 
did  not  define  the  term,  further  chan  its  use  in  contradistinction  to 
"  death  from  natural  causes  "  may  be  considered  as  having  some 
significance.     We  hence  should  give  the  word  its  usual,  natural,  and 
popular  meaning,  there  being  nothing  to  indicate  a  different  purpose 
in  its  use.     In  that  sense,  was  Lovelace's  death  an  accident?     We 
find  the  following  definitions  of  "  accident  "  in  the  law  dictionaries: 
"  Death  by  accident  means  death  from  any  unexpected  event  which 
happens  as  by  chance,  or  which  does  not  take  place  according  to 
the  usual  course  of  things."     Anderson  (1889).      "An   unusual  or 
unexpected  event."     Abbott  (1879).     "An  unforeseen  event  occur- 
ring without  the  will  or  design  of  the  person  whose  mere  act  causes 
it;    an    unexpected,    unusual    or    undesigned    occurrence."     Black 
(1891).      "  An    event   which,  under  the  circumstances,   is  unusual, 
and  unexpected    by   the    person    to    whom    it    happens."     Bouvier 
(1883).      "A  casualty;    an  act  of  Providence;  an  event  that  takes 
place    without    one's    foresight   or    expectation."      Burrill    (1887). 
"An    extraordinary    incident;    something    not    expected."     Whart. 
Law    Lex.    (1883).     The    larger    dictionaries    of   the    English    lan- 
guage   furnish    these,    among    other,    definitions    of    "accident," 
viz.:   "  In  general,  anything  that  happens  or  begins  to  be  without 
design  or  as  an  unforeseen  effect.      *     *     *     Specifically  an  unde- 
sirable or  unfortunate  happening;     *     *     *     a  casualty  or  mishap." 

LAW  OF  INSURANCE  iS 


274  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

Century  (1S89).  *'  Literally,  a  befalling;  an  event  that  takes  place 
without  one's  foresight  or  expectation;  a.i  undesigned,  sudden,  and 
unexpected  event;  *  *  *  often  an  undesigned  and  unforeseen 
occurrence  of  an  afflictive  or  unfortunate  character;  a  casualty;  a 
mishap;  as,  to  die  by  an  accident."  Webster,  International  (1S92). 
"  An  event  proceeding  from  an  unknown  cause,  or  happening 
without  the  design  of  the  agent;  an  unforeseen  event;  incident; 
casualty;  chance."  Worcester  (1888).  On  several  occasions  the 
courts  have  approved  or  quoted  some  of  the  foregoing  definitions  in 
dealing  with  the  subject  of  accident  insurance.  Schneider  v.  Insur- 
ance Co.  (1869),  24  Wis.  30;  Insurance  Co.  v.  Martin  (1869),  -^2  Md. 
315;  Ripley  v.  Assurance  Co.  (1870),  2  Bigelow,  Cas.  741,  Fed.  Cas. 
No.  11,854;  Insurance  Co.  v.  Burroughs  (1871),  69  Pa.  St.  5  i ;  Supreme 
Council  etc.  v.  Garrigus  (1885),  104  Ind.  140,  3  N.  E.  818.  In  other 
casi-s  they  have  freely  used  the  word  in  decisions,  in  the  broad 
meaning  w^iich  those  defi'iitions  express.  Vincent  v.  Stinehour  (1835), 
7  Vt.  62;  Bostjoick  V.  Sti/es  (1868),  35  Conn.  195;  Clements  v.  Rail- 
Tt'^r  C<?.  (1894),  2  Q.  B.  Di\\  482.  Some  special  cases  on  accident  poli- 
cies, different  from  that  now  before  us,  furnish,  nevertheless,  opinions 
of  learned  judges  which  cast  some  useful  light  on  the  present  contro- 
versy. In  Sinclair  v.  Assurance  ^o.  (1861),  4  Law  T.  (N.  S.)  15,  a 
case  wherein  the  Cjurt  of  Queen's  Bench  denied  a  right  of  recovery 
for  death  caused  by  a  sunstroke  sustained  by  the  master  of  a  ship 
in  China,  holding  that  such  death  was  not  "  a  personal  injury  aris- 
ing from  an  accident  at  sea,"  it  was  said  by  Chief  Justice  Cock- 
burn:  "It  is  difficult  to  define  the  term  '  accident,' as  used  in  a 
policy  of  this  nature,  so  as  to  arrive  with  perfect  accuracy  at  the 
boundary  line  between  death  from  accident  and  death  from  natural 
causes.  At  the  same  time  we  think  we  may  safely  assume  that  in 
the  term  '  accident,'  as  so  used,  some  violence,  casualty,  or  vis 
major  is  necessarily  involved."  In  Fenwickw.  Schmalz  (1868)  L.  R. 
3  C.  P.  313,  Willes,  J.,  held  that  a  snowstorm  was  not  an  accident 
(as  mentioned  in  a  charter  party),  because  it  is  one  of  the  ordinary 
operations  of  nature.  He  said  it  "  is  an  incident,  rather  than  an 
accident."  He  then  remarked:  "An  accident  is  not  the  same  as 
an  occurrence,  but  is  something  that  happens  out  of  the  ordinary 
course  of  things."  In  Ripley  v.  Assurance  Co.  (1870),  already  cited, 
it  is  said:  '"In  the  more  popular  and  common  acceptation  of  the 
word,  'accident,'  if  not  in  its  precise  meaning,  includes  any  event 
which  takes  place  without  the  foresight  or  expectation  of  the  person 
acted  upon  or  affected  by  the  event."  Death  by  drowning  (^Win- 
spear  V.  Insurance  Co.  [1880],  6  Q.  B.  Div.  42),  and  by  fright  {McGlin- 
chey  V.  Casualty  Co.  [1S88J,  80  Me.  251,  14  .-\tl.  13)  hav^e  been  hekl  to 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         2/5 

be  deaths  by  accident  under  policies  of  much  narrower  scope  than 
that  now  before  the  court. 

We  have  quoted  these  various  cases,  definitions,  and  comments, 
not  with  a  view  to  approve  or  criticise  any  one  of  them,  but  to  indi- 
cate the  very  wide  range  of  meaning  borne  by  the  word  "  accident," 
when  unaccompanied  with  any  limitation  in  the  context.  We  shall 
not  attempt  to  furnish  any  gereral  definition  of  an  accident  in  the 
particular  case  before  us,  further  than  the  conclusion  we  shall 
announce  may  imply.  The  learned  counsel  for  defendant  concedes 
the  force  of  the  argument  deduced  from  the  ordinary  meanings  of 
the  word,  but  insists  that  they  cannot  apply  where  the  insured  has 
voluntarily  assumed  the  risk  which  proves  to  be  fatal  —  in  this 
instance,  by  entering  into  the  altercation  which  led  to  his  death. 
But  there  is  one  weak  point  in  that  contention.  There  is  no  proof 
whatever  that  the  insured  had  any  cause  or  reasonable  ground  to 
anticipate  that  he  would  be  shot  or  killed  when  he  undertook  to 
attempt  to  eject  Graves  from  the  hotel.  There  is  no  proof  that 
Graves  exhibited  a  weapon,  or  made  any  remarks  indicating  a  pur- 
pose to  shoot,  before  the  affray.  The  mere  fact  that  Lovelace 
engaged  in  or  brought  on  a  fight  in  the  manner  described  did  not  of 
itself  indicate  that  he  sought  death,  or  had  reason  to  expect  it  as  a 
consequence  of  his  action.  la  Schneider  v.  Insurance  Co.  (1869),  ?.Af 
Wis.  28,  a  party  was  allowed  to  recover  upon  an  accident  policy, 
though  it  appeared  he  had  been  negligent  in  attempting  to  board  a 
moving  train  of  cars.  The  court  said:  "  There  is  nothing  in  the 
definition  of  the  word  'accident'  that  excludes  the  negligence  of 
the  injured  party  as  one  of  the  elements  contributing  to  produce 
the  result.  *  *  *  An  accident  may  happen  from  an  unknown 
cause,  but  it  is  not  essential  that  the  cause  should  be  unknown. 
It  may  be  an  unusual  result  of  a  known  cause,  and  therefore  unex- 
pected by  the  party.  And  such  was  the  case  here,  conceding  that 
the  negligence  of  the  deceased  was  the  cause  of  the  accident." 
Page  30.  That  decision  was  approvingly  followed  in  the  case  from 
the  22  Md.  report  already  cited.  In  Keene  v.  Association  (1894),  161 
Mass.  149,  36  N.  E.  891,  a  recovery  on  an  accident  policy  was  sus- 
tained where  the  assured  was  run  down  while  passing  over  a  street 
crossing  of  a  railway  track  in  front  of  a  moving  freight  car,  not- 
withstanding the  policy  required  the  assured  "  to  use  all  due  dili- 
gence for  personal  safety."  In  Cornish  v.  Insurance  Co.  (1889),  23 
Q.  B.  Div.  453,  it  appeared  that  the  insured  met  his  death  by  attempt- 
ing, in  broad  daylight,  to  cross  the  main  line  of  a  railway  in  front  of 
a  coming  train,  which  struck  and  killed  him.'  The  English  Court 
of  Appeal  held  that  there  could  be  no  recovery  upon  a  policy  which 


276  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

excepted,  from  tlie  risks  insured  against,  accidents  happening  by 
"  exposure  of  the  insured  to  obvious  risk  of  injury."  But  Lindley, 
L.  J.,  who  delivered  the  leading  opinion,  placed  the  ruling  upon  the 
language  just  quoted,  remarking,  in  so  doing:  "  We  accept  the  view 
of  the  jury  that  this  accident  may  be  called  an  ordinary  misad- 
venture, but  the  question  is  whether  the  policy  covers  it."  He 
thus  characterized  the  mishap  as  an  "accident,"  notwithstanding 
the  gross  negligence  of  the  insured.  In  Insurance  Co.  v.  McConkey 
(18S8),  127  U.  S.  661,  8  Sup.  Ct.  1360,  where  the  insured  had  been 
killed  by  a  shot  (whether  fired  by  himself  or  by  another  was  in  issue), 
the  Supreme  Court  of  the  United  States  based  a  similar  ruling, 
denying  a  recovery,  on  the  express  terms  of  the  policy,  excepting 
from  its  scope  "  intentional  injuries  inflicted  by  the  insured  or  any 
other  person."  A  like  ruling  was  made  in  construing  the  same 
language  of  an  accident  policy  in  this  state.  Phelan  v.  Insurance 
Co.  (1890),  38  Mo.  App.  640.  In  other  cases  it  has  been  held  that 
death  produced  by  the  direct  violence  of  a  third  party  is  none  the 
less  an  accident,  as  regards  the  insured,  because  the  injury  was 
intentionally  inflicted  by  the  third  party.  Hutchcraff s  Ex' r  v. 
Travelers''  Ins.  Co.  (1888),  87  Ky.  300,  8  S.  W.  570;  Richards  v.  Insur- 
ance Co.  (1891),  89  Cal.  170,  26  Pac.  762.  But  in  the  former  case  a 
recovery  was  denied  because  of  a  clause  in  the  policy  similar  to  that 
quoted  above  from  the  McConkey  case.  It  has  been  declared,  with 
reference  to  fire  insurance,  that  even  gross  negligence  of  the  insured 
will  not  defeat  a  recovery  in  the  absence  of  stipulations  having  such 
an  effect.  Shawx.  Robberds  (\^2>l)->  ^  Adol.  &  E.  75;  Insurance  Co. 
V.  Glasgow  {\'^if\)y  8  Mo.  713;  Johnson  v.  Insurance  Co.  (1862),  4 
Allen,  388;  Ifisurance  Co.  v.  Parisot  (1878),  35  Ohio  St.  35.  In 
Supreme  Council,  etc.,  v.  Garrigus  (1885),  104  Ind.  133,  3  N.  E.  818, 
it  was  ruled  that  where  the  insured  engaged  in  a  fight  without  fault 
on  his  part,  in  consequence  of  which  he  received  injuries  resulting 
in  his  death,  the  latter  was  an  "  accident,"  within  the  meaning  of  a 
benefit  certificate.  In  view  of  the  definitions  and  legal  precedents 
above  quoted  and  cited,  and  of  the  very  general  terms  of  the  policy 
under  consideration,  w^e  conclude  that  its  reasonable  and  natural 
meaning  includes  within  the  term  "  accident  "  such  a  death  as 
Lovelace  met.  Whether  he  acted  lawfully  as  a  guest  of  the  hotel, 
during  the  absence  and  illness  of  the  proprietor,  in  attempting  to 
remove  Graves  from  the  hotel  office  by  force,  we  think  needless  to 
investigate.  It  may  be  assumed  that  by  his  course  of  conduct  he 
voluntarily  assumed  the  risks  of  a  fight;  but  there  is  nothing  in  the 
circumstances  to  show  that  he  voluntarily  assumed  the  risk  of  death. 
We  consider  his  killing  \v\  "  accident,"  in  the  popular  and  orjiniry 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT.         277 

sense  in  which  that  word  is  generally  used.  It  certainly  was  an 
accident,  so  far  as  he  was  concerned.  We  do  not  doubt  that  such 
should  be  the  construction  given  to  the  word  in  the  contract  in  suit; 
and  that,  in  so  concluding,  we  give  effect  to  the  true  purpose  and 
intent  of  the  parties  to  the  document.  The  learned  trial  judge 
reached  the  same  conclusion.  The  judgment  is  affirmed. 
Black,  C.  J.,  and  Brace  and  MacFarlane,  JJ.,  concur.' 


2.  External  Injurv. 

McGLINCHEY  v.  FIDELITY  AND  CASUALTY  CO. 

80  Me.  251.  —1888. 

Peters,  C.  J.  — The  plaintiffs,  who  are  minor  children,  sue  for 
one  thousand  dollars,  an  amount  insured  in  an  accident  policy  on 
the  life  of  their  father  by  the  defendant  company.  The  circum- 
stances of  the  father's  death  were  these:  On  a  morning,  while  a  resi- 
dent of  Calais,  he  was  driving  in  a  covered  carriage,  containing 
himself  and  his  two  small  boys,  on  the  principal  public  way  in  St. 
Stephen,  N.  B.,  when  his  horse,  frightened  at  a  load  of  hides  pass- 
ing the  same  way,  suddenly  sprang  into  a  run,  iirst  jumping  to  the 
side  of  the  way  and   nearly  colliding  with  other  teams,  and  ran  a 


'  In  Bacon  v.  Accident  Assoc,  123  N  Y.  304,  the  accident  policy  provided  that 
il  should  not  extend  to  death  caused  by  disease.  Death  was  caused  by  a  malig- 
nant pustule  upon  the  lip.  The  plaintiff  contended  that  this  pustule  was  not 
a  disease  but  a  "  pathological  condition  "  caused  by  the  accidental  infliction  of 
putrid  animal  matter  infected  with  bacilli  anthrax  which  multiply  and  are 
diffused  through  the  system.  The  defendant  contended  and  the  court  held  that 
the  malignant  pustule  was  an  infectious  germ  disease,  the  court  saying:  "  It 
seems  to  me  clear  that  the  meaning  of  the  words  used  in  the  policy  cover  just 
such  a  case,  and  that  the  parties  never  intended  that  a  cause  of  death  which  to 
all  outward  appearances  and  to  the  world  in  general  was  a  disease,  should  be 
converted  into  a  '  pathological  condition  '  of  the  body  caused  by  accident." 

In  Western  Commercial  Trav.  Assoc,  v.  Smith,  85  Fed.  401,  where  death 
resulted  from  blood  poisoning  following  an  abrasion  of  the  skin  of  a  toe  by 
wearing  a  new  shoe,  the  couit  said:  "  Was  the  abrasion  of  the  skin  of  the  toe 
of  the  deceased  the  natural  and  probable  consequence  of  wearing  new  shoes? 
It  must  be  conceded  that  new  shoes  are  not  ordinarily  worn  with  the  design  of 
causing  abrasions  of  the  skin  of  the  feet,  and  the  trial  court  has  found  that  the 
abrasion  upon  the  toe  of  the  deceased  was  produced  unexpectedly,  and  without 
any  design  on  his  part  to  cause  it.  An  abrasion  of  the  skin,  certainly,  is  not 
the  probable  consequence  of  the  use  of  new  shoes;  for  it  cannot  be  said  to  fol 
low  such  use  more  frequently  than  it  fails  to  follow  it.  Nor  can  such  an  abra- 
sion be  said  to  be  the  natural  consequence  of  wearing  such  shoes,  —  the  conse- 


278  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

considerable  distance  before  he  was  brought  under  control.  The 
result  was  that  there  was  no  collision,  nor  was  the  carriage  upset  or 
any  one  thrown  therefrom.  Immediately  afterwards  the  insured 
experienced  great  sickness  and  pain,  and,  going  directly  to  his 
house,  died  in  about  an  hour  from  the  moment  of  the  accident.  He 
was  in  good  health  on  that  morning,  before  the  accident,  and  there 
is  no  suggestion  that  he  was  not  a  person  of  generally  sound  and 
strong  constitution.  His  business  was  that  of  a  commercial  traveler. 
The  case  is  reported  for  our  determination  upon  the  law  of  the  facts. 
We  think,  on  these  facts,  that  the  common  judgment  of  men 
would  instinctively  declare,  irrespective  of  the  refinements  which 
are  often  indulged  in  over  primary  and  secondary  causes,  that  here 
was  a  plain  accident  causing  death,  and  that  the  company  should 
pay  the  sum  promised  in  the  policy.  In  any  reasonable  view  that 
can  be  taken  of  the  series  of  happenings,  our  minds  go  to  the  same 
conclusion.  We  believe  that  the  common-sense  view  is  also  the 
legal  view.  The  company  insures  against  death  by  accident.  And 
as,  in  some  cases,  it  is  difficult  to  de^ermine  whether  the  death  is 
caused  by  disease  or  accident,  in  order  to  prevent  fraud  or  mistake, 
the  company  provides  its  own  test  by  which  the  fact  shall  be  ascer- 
tained.    The  leading  provision  of  the  policy  is  that  those  interested 


quence  which  ordinarily  follows,  or  which  might  be  reasonably  aniicipated 
How,  then,  can  it  fail  to  be  the  chance  result  of  accidental  means,  —  means  not 
designed  or  calculated  to  produce  it?  If  the  deceased,  without  design,  had 
slipped  and  caused  an  abrasion  of  his  skin,  as  he  was  walking  down  the  street 
or  had  punctured  the  skin  of  his  foot  by  stepping  on  a  nail  in  his  room,  or  had 
pierced  it  with  a  nail  in  his  shoe  as  he  was  drawing  it  upon  his  foot,  there 
could  have  been  no  doubt  that  these  injuries  were  produced  by  accidental 
means;  and  it  is  difficult  to  understand  why  an  abrasion  of  the  skin,  produced 
unexpectedly  and  without  design,  by  friction  caused  by  wearing  a  new  shoe, 
does  not  fall  within  the  same  category." 

In  Accident  Ins.  Co.  v.  Crandal,  120  U.  S.  527,  the  question  as  slated  by  the 
court  was:  "  Whether  a  policy  of  insurance  against  '  bodily  injuries,  effected 
through  external,  accidental  and  violent  means'  *  *  *  and  providing  that 
'  this  insurance  shall  not  extend  to  death  or  disabling,  which  may  have  been 
caused  wholly  or  in  part  by  bodily  infirmities  or  disease,  or  by  suicide,  or  self- 
inflicted  injuries;'  covers  a  death  by  hanging  one's  self  while  insane."  The 
court  held  (i)  that  "  bodily"  applies  here  to  "  diseases  "  as  well  as  "  infirmi 
ties"  and  that  "  in  the  common  speech  of  mankind  mental  are  distinguished 
from  bodily  diseases;  "  (2)  that  "  suicide  "  and  "  self-inflicted  injuries  "  cannot 
be  predicated  of  an  insane  person,— that  acts  thus  committed  cannot  with 
propriety  be  described  as  his  acts.  See  also  Fidelity  and  Casualty  Co.  v.  Johnson, 
72  Miss.  333,  where  death  at  the  hands  of  a  mob.  by  hanging,  was  held  to  have 
lesuUed  through  "  external,  violent  and  accidental  means;  "  and  also  Insurance 
Co.  V.  Bennett,  90  Tenn.  256,  upon  accident  insurance  generally. 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         279 

in  the  insurance,  in  order  to  establish  the  liability  of  the  company, 
shall  prove' that  death  was  caused  "by  bodily  injuries  effected 
through  external,  violent  and  accidental  means,"  within  the  mean- 
ing of  the  contract.  The  company  having  chosen  its  definition  of 
liability,  and  having  the  opportunity  of  annexing  conditions  which, 
usually,  are  not  closely  observed  by  persons  accepting  insurances, 
the  meaning  of  the  terms  employed  need  not  be  enlarged  or  restricted 
for  the  benefit  of  the  company,  but  should  be  liberally  interpreted 
in  favor  of  the  insured. 

Was  the  death  in  this  instance  caused  by  bodily  injuries  effected 
through  external,  violent  and  accidental  means?  Certainly  there 
was  an  accident.  The  definition  of  accident,  generally  assented  to, 
is  an  event  happening  without  any  human  agency,  or  if  happening 
through  human  agency,  an  event  which,  under  the  circumstances,  is 
unusual  and  not  expected  to  the  person  to  whom  it  happens.  This 
definition  exactly  fits  the  facts  here.  Argument  cannot  be  neces- 
sary to  satisfy  any  one  that  the  injury  happened  by  violent  means. 
A  well  man  suddenly  meets  a  perilous  emergency  which  taxes  all  his 
physical  and  mental  strength,  and  his  death  is  caused  thereby  in 
an  hour. 

The  greater  question  is  whether  the  death  was  caused  by  external 
means.  We  have  no  doubt  it  was.  And  really  all  the  questions  of 
the  case  may  be  resolved  into  the  single  inquiry  as  to  what  was  the 
real  cause  producing  death.  And  here  a  question  of  fact  must  to 
some  extent  be  determined.  The  testimony  is  meager.  Possibly 
the  counsel  for  the  plaintiffs  relies  on  the  preliminary  proofs  of  loss 
as  evidence  in  chief,  which  are  fuller  than  the  general  testimony, 
but  that  is  not  allowable.  Leaving  the  proofs  of  loss  to  serve  only 
the  proper  purpose  for  which  they  could  be  introduced,  all  the  evi- 
dence we  have,  more  than  the  facts  already  stated,  is  that  the 
insured  became  deathly  sick,  and  after  death  a  discoloration 
appeared  on  the  surface  of  the  body  in  the  region  of  the  heart. 
There  is  no  pretense  that  the  body  bore  any  marks  of  contact  with 
anything  inflicting  injury,  or  that  it  came  in  contact  with  any 
physical  object  during  the  time  of  the  accident.  Our  belief  is,  on 
the  facts  legitimately  before  us,  that  death  was  produced  by  a 
ruptured  blood  vessel  about  the  heart,  and  that  such  rupture  was 
caused  by  the  extraordinary  physical  and  mental  exertion  which  the 
deceased  put  forth  to  save  his  children  and  himself  from  injury. 
The  physical  strain  and  mental  shock  was  more  than  he  could  bear. 
In  this  calculation  of  the  facts  we  come  easily  to  the  conclusion  that, 
as  between  these  parties,  physical  and  external  causes  effected  death. 
The  misconduct  of  the  horse,  and  inseparably  connected  therewith 


280  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

the  conduct  of  the  man  on  the  occasion,  in  his  effort  to  avoid  the 
threatened  catastrophe,  brought  death. 

The  defendants,  however,  do  not  agree  to  this  version  of  the 
facts.  They  contend  that  death  was  produced  purely  by  frii^ht,  and 
not  by  the  aid  of  any  physical  means  whatever,  and  that  the  means 
through  which  death  was  produced  must  be  considered  as  internal 
only.  But  if  it  is  to  be  admitted  that  death  was  caused  through 
fright,  even  then  we  are  just  as  strongly  convinced  it  was  also 
caused  by  external  means.  Whether  one  thing  or  another  shall  be 
considered  the  proximate  cause  depends  upon  the  relation  of  the 
parties  to  the  suit  with  each  other,  as  well  as  upon  other  circum- 
stances. If  the  death  be  laid  to  fright,  it  must  be  because  fright 
produced  bodily  injury,  and  the  means  which  produced  fright  were 
external.  It  is  impossible  to  impute  the  death  to  fright  without  an 
explanation  of  the  circumstances  or  situation  which  produced  the 
fright.  Suppose  any  person  inquires  of  another  what  caused  the 
death  of  a  friend,  and  the  answer  be  that  he  died  from  fright. 
Would  the  question  be  more  than  half  answered?  Would  not  the 
inquirer  immediately  and  instinctively  ask  the  cause  of  the  fright? 
^n  most  conditions,  and  in  almost  every  sense,  fear  is  an  effect  of 
something  merely.  There  must  be  some  active  cause  behind  it.  In 
the  present  case  it  was  no  more  than  an  agency  through  which  the 
accident  acted.  It  was  a  dependent  and  not  independent  factor  in 
the  series  of  operating  forces.  It  was  no  more  the  real  cause  of  the 
death  than  a  hammer  in  the  hands  of  a  workman, -who  strikes  a  blow 
with  it,  is  the  cause  of  such  blow.  The  efificient,  true  cause, 
dominating  all  other  causes  in  the  combination,  was  the  misbehavior 
of  the  running  horse.  Subsequent  occurrences  were  merely  the 
instrumentalities  through  which  the  real  cause  spent  its  force.  The 
act  of  the  horse  was  the  beginning,  death  was  the  end.     *     *     * 

Then  there  are  cases  more  directly  touching  the  question  as  to 
whether  the  injuries  in  the  case  at  bar  were  produced  by  external 
means  or  not.  It  has  been  held  that  an  insane  man  who  takes  his 
own  life  dies  from  an  injury  produced  by  external,  accidental  and 
violent  means.  Accident  Ins.  Co.  v.  Crandal^  120  U.  S.  527.  Same 
result  follows  when  death  ensues  from  accidental  drowning.  Trew 
V.  Assurance  Co.,  6  H.  &  N.  845;  Winspear  v.  Accident  Ins.  Co.,  6 
Q.  B.  Div.  42.  Accidentally  inhaling  coal  gas,  causing  death, 
entitles  a  recovery  upon  a  policy  like  the  present.  Fai/i  v.  Travel- 
ler s  Ins.  Co.,  45  Hun,  318.'  A  death  from  blood  poisoning,  pro- 
duced by  virus  communicated  to  the  hand  by  a  fly,  comes  within  the 

'  Affirmed.  112  N.  Y.  472. 


TERMS   OF   THE   ACCIDENT   INSURAXCE   CONTRACT.         28I 

terms  of  such  a  policy.  Bacon  v.  U.  S.  Mut.  Accident  Ass'n,  44 
Hun,  599.'  '  The  latter  case  has  been  criticised  upon  the  point 
whether  the  means  in  that  instance  were  violent  or  not.  In  /nsi^r- 
ance  Co.  v.  Burroughs.,  69  Penn.  St.  43,  the  court  says:  "  If  the 
injury  be  accidental  and  the  result  is  death,  what  matters  it  whether 
the  injury  is  caused  by  a  blow  from  a  pitchfork  or  from  a  strain  in 
handling  it."  In  these  cases  it  was  held  that  the  true  cause  of  the 
death  came  from  the  outside,  were  external  means.  Upon  principle, 
we  think  the  same  decision  must  be  reached  here. 

Another  point  of  defense  is  taken.  By  a  subsidiary,  conditional 
clause  in  the  policy  it  is  provided  that  the  insurance  "  does  not 
extend  to  any  bodily  injury  of  which  there  shall  be  no  external  and 
visible  sign  upon  the  body  of  the  insured."  This  does  not  apply  to 
fatal  injuries,  but  only  to  those  not  resulting  in  death.  It  would  be 
utterly  unjust  if  this  condition  applied  in  cases  of  death.  It  would 
preclude  recovery  in  all  instances  where  death  occurs  by  drowning, 
freezing,  poisoning,  suffocation,  concussion,  means  of  death  leaving 
no  outward  mark,  and  also  where  the  insured  has  been  killed  and 
his  body  is  missing.  The  context  shows  that  the  clause  is  only  appli- 
cable to  injuries  not  resulting  in  death.  The  policy  declares  that 
the  insurance  shall  not  extend  to  bodily  injuries  unless  the  external 
sign  of  injury  is  visible,  "  nor  to  any  death  caused  "  in  certain  ways 
named.  There  are  reasons  for  the  condition  applying  to  a  sur- 
viving claimant.  He  has  unusual  chance  for  feigning  an  internal 
injury,  if  disposed  to  defraud  the  insurers.  But  no  such  protection 
is  required  where  the  accident  causes  death.  The  dead  body  is 
external  and  visible  sign  enough  that  an  injury  was  received.  Mai- 
lory  v.  Travellers'  Ins.  Co..,  47  N.  Y.  52;  Paul  v.  Travellers  Ins. 
Co.,  45  Hun,  318. 

Defendants  defaulted. 

Walton,  Virgin,  Libbey,  Foster,  and  Haskell,  concurred. 


'General  Term  of  the  Supreme  Ct.,  1887,  reversing  a  judgment  entered  upon 
a  verdict  directed  for  the  defendant,  and  granting  a  new  trial.  Upon  the  new 
trial  there  was  a  verdict  for  the  plaintiff;  defendant  appealed  to  the  Genera) 
Term  of  the  Supreme  Ct.,  but  the  judgment  was  affirmed.  20  N.  Y.  State 
Reporter,  204.  An  appeal  was  taken  to  the  Court  of  Appeals  and  the  judgment 
was  reversed  and  a  new  trial  ordered.  123  N.  Y.  304.  See  digest  of  this  case 
ante,  p.  277,  note- 


282  THE    TERMS   OF   THE    INSURANCE   CONTRACT. 

3.    Proximate  Cause. 
FREEMAN  v.  MERCANTILE    MUTUAL    ACCIDENT  ASSOC. 

156  Mass.  351.  —  1892 

Knowlton,  J.  — The  plaintiff  claims  under  a  policy  or  certificate 
of  insurance  issued  to  Knowles  Freeman,  containing  a  provision  for 
payment  to  her  of  a  sum  not  exceeding  $5,000  in  case  of  his  death 
from  an  accident,  and  also  a  provision  for  a  weekly  payment  to  him 
as  an  indemnity  against  loss  of  time  if  he  should  be  disabled  by  an 
accident.  The  condition  on  which  the  plaintiff  is  entitled  to  pay- 
ment is  stated  in  the  policy  to  be  upon  "  proof  that  said  Knowles 
Freeman  shall  have  sustained,  during  the  continuance  of  his  mem- 
bership, bodily  injuries  effected  through  external,  violent  and  acci- 
dental means,  within  the  intent  and  meaning  of  the  by-laws  of  said 
association,  and  the  conditions  herein  recited,  and  such  injuries 
alone  shall  have  occasioned  death  within  ninety  da)s  from  the  hap- 
pening thereof."  The  first  part  of  the  second  paragraph  of  the  con- 
ditions above  referred  to  is  as  follows:  "  That  benefits  under  this 
certificate  shall  not  extend  to  any  case  in  which  there  shall  be  no 
symptom  or  visible  sign  of  bodily  injury;  nor  to  any  case  in  which 
death  or  disability  occurs  in  consequence  of  disease,  or  which 
may  have  been  caused  by  any  surgical  operation,  or  medical  or 
mechanical  treatment,  unless  the  said  operation  or  treatment  shall 
have  been  undertaken  for  the  relief  of  injuries  which  entitle  the 
member  to  the  benefits  of  this  association,  nor  to  any  case  except 
where  the  injury  is  the  proximate  cause  of  the  disability  or 
death." 

It  was  proved  that  Knowles  Freeman  died  of  peritonitis  localized 
in  the  region  of  the  liver,  and  the  evidence  tended  to  show  that  it 
was  induced  by  a  fall.  There  was  also  evidence  indicating  that  he 
had  previously  had  peritonitis  in  the  same  part,  and  that  the  pre- 
vious disease  had  produced  effects  which  rendered  him  very  liable  to 
a  recurrence  of  it.  The  report  presents  questions  arising  on  the 
defendant's  requests  for  rulings  which  relate  to  the  portions  of  the 
policy  above  quoted.  The  defendant  contends  that  it  is  not  liable 
in  case  of  a  death  from  disease,  even  if  the  disease  is  caused  by  an 
accident.  The  principal  question  in  the  case  is,  What  kind  of  cause 
is  to  be  deemed  proximate  within  the  meaning  of  the  policy?  Where 
different  forces  and  conditions  concur  in  producing  a  result,  it  is 
often  difficult  to  determine  which  is  properly  to  be  considered  the 
cause,  and,  in  dealing  with  such  cases,  the  maxim,  causa  proxima 
non  remota  spectatur,  is  applied.      But   this  does  not  mean  that  the 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         283 

cause  or  condition  wliich  is  nearest  in  time  or  space  to  the  result  is 
necessarily  to  be  deemed  the  proximate  cause.  It  means  that  the 
law  will  not  go  farther  back  in  the  line  of  causation  than  to  find 
the  active,  efficient,  procuring  cause,  of  which  the  event  under  con- 
sideration is  a  natural  and  probable  consequence,  in  view  of  the 
excitnig  circumstances  and  conditions.  The  law  does  not  con- 
sider the  cause  of  causes  beyond  seeking  the  efficient  predominant 
cause,  which,  following  it  no  farther  than  those  consequences 
that  might  have  been  anticipated  as  not  unlikely  to  result  from  it, 
has  produced  the  effect.  An  injury  which  might  naturally  produce 
death  in  a  person  of  a  certain  temperament  or  state  of  health  is  the 
cause  of  his  death,  if  he  dies  by  reason  of  it,  even  if  he  would  not 
have  died  if  his  temperament  or  previous  health  had  been  different; 
and  this  is  so,  as  well  when  death  comes  through  the  medium  of  a 
disease  directly  induced  by  the  injury,  as  when  the  injury  imme- 
diately interrupts  the  vital  processes. 

Most  of  the  requests  for  rulings  were  founded  upon  a  different 
theory  of  law,  and  were  rightly  refused.  On  this  part  of  the  case 
the  presiding  justice,  after  having  explained  and  elaborated  his 
views,  summed  up  as  follows:  "  Upon  the  question  as  to  whether 
peritonitis,  if  that  caused  his  death,  is  to  be  deemed  a  disease 
within  the  meaning  of  this  policy,  and  the  proximate  cause  of  death 
within  the  meaning  of  this  policy,  so  as  to  prevent  a  recovery, 
depends  the  question  whether  or  not  before  the  time  of  the  fall,  and 
at  the  time  of  the  fall,  he  had  then  the  disease  —  was  then  suffering 
with  the  disease.  If  he  was,  then  in  the  sense  of  the  policy,  although 
aggravated  and  made  fatal  by  the  fall,  he  cannot  recover  But  if, 
owing  to  existing  lesions  caused  by  that  disease,  but  not  having  the 
disease  at  the  time,  the  same  kind  of  malady,  that  is,  peritonitis, 
was  started  up,  the  company  are  to  be  answerable,  although,  if  there 
had  been  a  normal  state  of  things  the  fall  would  not  have  occasioned 
such  a  result."  This  ruling  gives  an  interpretation  to  the  language 
of  the  policy  which  is  in  accordance  with  the  apparent  purpose  and 
intention  of  the  parties,  and  which  makes  the  contract  a  beneficent 
provision  for  the  beneficiaries  named  in  it.  It  is  also  in  harmony 
with  the  general  course  of  decisions.  Marble  v.  IVorcester,  4  Gray, 
395,  and  cases  cited.  McDonald  y.  Snelling,  14  Allen,  290;  Perley 
v.  Eastern  Railroad^  98  Mass.  414;  Metallic  Compression  Casting  Co. 
V.  Fitchburg  Railroad^  109  Mass.  277;  National  Benefit  Association  v. 
Grauman^  107  Ind.  288;  N'ort/i  American  Ins.  Co.  v.  Burroughs,  69 
Penn.  St.  43;  S/ieanonv.  Pacific  Ins.  Co.,  77  Wis.  618;  Insurance  Co. 
V.  Tweed,   7    Wall.  44;   Insurance   Co.    v.    Seaver,    19   Wall.    531,      To 


284  THE   TERMS   OF   THE    INSURANCE   CONTRACT, 

adopt  the  view  contended  for  by  the  defendant  would  make  the 
policy  worthless  to  beneficiaries  in  many  cases  of  death  where  an 
injury  resulting  from  an  accident  was  the  efficient  cause.     *     *     * 

Judgment  on  the  verdict.' 


4.  Voluntary  Exposure. 

BURKHARD  v.  TRAVELLERS'  INS.  CO.  OF  HARTFORD. 

102  Pa.  262.  —  1S83. 
Chief  Justice  Mercur  *  *  *  -pj-jg  business  of  this  comoany 
is  to  insure  against  accidents.  The  purpose  of  this  policy  is  to  pay 
specific  damages  for  bodily  injuries  and  death  caused  by  external, 
violent  and  accidental  means.  The  death  of  the  intestate  was  so 
caused.  The  company  seeks  to  avoid  liability  under  two  clauses 
in  the  policy.  One  provides  the  insurance  shall  not  extend  to  a  case 
of  death  or  injury  caused  by  "  voluntary  exposure  to  unnecessary 
danger;"  the  other  that  "  walking  or  being  on  the  road-bed  or 
bridge  of  any  railway  are  hazards  not  contemplated  or  covered  by 

'  In  the  Traitclers'  Ins.  Co.  v.  Melick,  65  Fed.  178,  the  company  insured  Dr. 
Robbins  against  death  resulting  from  bodily  injuries  effected  through  external, 
violent  and  accidental  means  alone,  independent  of  all  other  causes;  the  policy 
providing  that  the  insurance  did  not  cover  suicide,  sane  or  insane;  nor  acci- 
dent, nor  death,  resulting  wholly  or  partly  from  disease  or  bodily  infirmity;  or 
from  intentional  injuries  inflicted  by  the  insured  or  any  other  person. 

There  was  evidence  that  the  doctor  accidentally  sent  a  bullet  through  the 
fleshy  portion  of  his  foot,  Jane  i,  1890;  that  the  wound  thus  caused  became 
very  painful,  confined  him  to  his  bed,  caused  a  fever,  and  gradually  reduced 
his  strength,  until  he  died,  June  18,  1890;  that  this  gunshot  wound  was  just 
such  an  injury  as  would  naturally  produce  telanus  or  lockjaw;  that  the  doctor 
and  his  physicians  feared  that  disease  from  the  first,  and  thai  they  used  chloral 
and  chloroform  to  relieve  the  pain  and  ward  off  this  disease;  that  in  the  early 
morning  of  June  18,  1890,  while  the  deceased  was  alone  in  his  room,  he  was 
seized  with  tetanus;  that  this  disease  causes  the  most  excruciating  pains  that 
human  beings  ever  suffer;  thai  it  is  fatal  in  avast  majority  of  cases;  that  it 
produces  spasms  or  convulsions,  and  sometimes  causes  death  by  a  spasm  of  the 
larynx,  which  prevents  the  passage  of  air  through  the  trachea  to  or  fiom  the 
lungs;  that  the  doctor  was  found  dead  in  his  bed,  June  18,  1890,  with  a  scalpel 
in  his  right  hand,  and  his  trachea  and  both  his  jugular  veins  cut;  that  the 
tetanus  was  sufficient  to  croduce  his  death,  and  the  throat-cutting  was  sufficient 
to  produce  it.  The  question  of  proximate  cause  was  left  10  the  jury,  and  a 
verdicl  was  rendered  for  plaintiff.  Defendant  appealed;  judgment  lelow 
affirmed,  the  court  saying:  "  It  is  assigned  as  error  that  the  court  below 
refused  to  instruct  the  jury  to  return  a  verdict  f:)r  ihe  insurance  companv:  and 
it  is  contended  that  the  question  whether  the  shot  wound  which  caused  the  tela- 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT.         285 

this  contract,  and  no  sum  will  be  paid  for  disability  or  loss  of  life, 
in  consequence  of  such  exposure,  or  while  thus  exposed." 

The  insured  was  traveling  by  rail  thiough  Indiana  on  his  way  to 
Kentucky.  The  train  stopped  on  the  bridge  across  the  Ohio  river 
by  reason  of  the  draw  part  of  the  bridge  being  open.  He  went  to 
the  front  platform  of  the  coach  in  which  he  was  riding,  and  stepped 
off,  and  through  a  hole  in  the  floor  of  the  bridge,  causing  his  death. 
This  hole  was  about  three  feet  wide  and  four  feet  long.  It  was 
caused  by  the  removal  of  some  planks  during  the  making  of  repairs. 

I.  Was  this  act  of  the  insured  a  voluntary  exposure  to  unnecessary 
danger? 

To  make  him  guilty  of  a  "  voluntary  exposure  to  danger  "  he 
must  intentionally  have  done  some  act  which  reasonable  and  ordinary 
prudence  would  pronounce  dangerous.  The  uncontradicted  evidence 
shows  that  several  other  passengers  got  out  of  the  coach,  and 
some  of  them  in  advance  of  the  insured.  They  certainly  appre- 
hended no  danger.  It  is  customary  for  male  passengers  to  alight 
when  a  train  stops  for  any  length  of  time.  No  notice  was  given  to 
passengers  that  it  was  dangerous  to  get  out  of  the  coach  where  it 
stood.  So  far  as  appears,  the  bridge,  with  the  exception  of  this 
hole,  was   well   covered   with   plank   and   entirely   safe.     When  the 

nus,  or  the  throat  cutting,  was  the  proximate  cause  of  the  death,  was  a  question 
of  law  for  the  court.  *  *  *  This  question  was  peculiarly  one  of  fact.  The 
insurance  company  had  agreed  to  pay  the  promised  indemnity  for  any  death 
that  resulted  from  the  accidental  shot  wound  alone.  The  question  was,  what 
did  in  fact  cause  the  death,  —  the  shot  wound,  the  cutting,  or  both?  Nor  would 
this  case  be  withdrawn  from  the  effect  of  this  rule  if  the  evidence  upon  this 
question  was  undisputed,  for  the  question  is  always  for  the  jury  where  a  giv^en 
state  of  facts  is  such  that  reasonable  men  may  fairly  differ  upon  it.  It  is  only 
when  all  reasonable  men,  fairly  exercising  their  judgments,  must  draw  ihe 
same  conclusion  from  an  admitted  state  of  facts,  that  it  becomes  the  duty  of 
the  court  to  withdraw  a  question  of  fact  from  the  jury.  *  *  *  i[  must  be 
borne  in  mind  that  the  doctrine  of  proximate  cause  has  a  different  relation  to 
an  action  for  negligence  from  that  which  it  bears  to  a  contract  to  indemnify  for 
the  result  of  a  given  cause.  In  the  former  it  measures  the  liability,  while  in 
the  latter  the  contract  fixes  the  extent  of  the  liability.  In  an  action  for  negli- 
gence the  liability  extends  only  to  the  natural  and  probable  consequences  of 
the  negligent  act.  In  the  case  in  hand  the  contract  is  to  indemnify  the  insured 
against  death  that  shall  result  within  ninety  days  from  accidental  bodily  inju- 
ries alone.  The  company  was  undoubtedly  liable  under  this  contract  for  the 
death  of  the  insured  if  that  death  did  in  fact  result  from  the  accidental  shot 
wound  alone.  The  crucial  question  was  whether  or  not  it  did  in  fact  so  result, 
and  the  doctrine  of  proximate  cause  was  applicable  to  this  case  only  to  aid  in 
finding  a  just  answer  to  this  question,  and  not  to  measure  the  liability  which  the 
contract  had  fixed," 

See  also  Travelers'  Ins.  Co.  v.  Murray,  16  Col.  296. 


286  THE   TERMS   OF   TiIE    INSURANCE   CONTRACT. 

intestate  alighted  other  passengers  were  standing  on  the  bridge  near 
the  brakenian.  The  latter  was  sitting  on  timber  that  was  lying 
on  the  foot-walk  of  the  bridge,  and  was  to  be  used  in  the  repairs 
being  made.  The  passengers  had  no  knowledge  of  these  repairs. 
The  brakeman  held  his  lantern  so  placed  on  the  floor  that  another 
timber  cast  its  shadow  over  this  hole  making  it  impossible  for  the 
insured  to  see  it.  He  could  see  that  portion  of  the  floor  lighted  by 
the  lantern,  and  the  passengers  standing  thereon.  He  could  see  the 
brakeman  near  them.  He  stepped  out  of  the  coach  in  plain  sight  of 
the  brakeman.  He  had  a  right  to  suppose  he  would  land  on  a  floor 
as  firm  as  that  on  which  the  others  stood.  Neither  word  nor  sight 
gave  him  any  notice  of  danger.  He  did  not  approach  the  opening 
caused  by  the  draw,  and  was  not  injured  thereby. 

It  is  true  he  voluntarily  left  the  car;  but  a  clear  distinction  exists 
between  a  voluntary  act  and  a  voluntary  e.xposure  to  danger.  Hid- 
den danger  may  exist;  yet  the  exposure  thereto  without  any  knowl- 
edge of  the  danger  does  not  constitute  a  voluntary  exposure  to  it. 
The  approach  to  an  unknown  and  unexpected  danger  does  not  make 
the  act  a  voluntary  exposure  thereto.  The  result  of  the  act  does 
not  necessarily  determine  the  motive  which  prompted  the  action. 
The  act  may  be  voluntary;  yet  the  exposure  involuntary.  The 
danger  being  unknown,  the  injury  is  accidental.  Accident  is  defined 
by  Worcester  to  be  an  event  proceeding  from  an  unknown  cause  or 
happening  without  the  design  of  the  agent;  an  unforeseen  event; 
incident;  casualty;  chance;  and  by  Webster,  an  event  that  takes 
place  without  one's  forethought  or  expectation;  an  event  which  pro- 
ceeds from  an  unknown  cause  or  is  an  unusual  effect  of  a  known 
cause,  and  therefore  not  expected;  chance;  casualty;  contingency. 
In  view  of  the  unquestioned  facts,  the  death  of  the  intestate  was 
accidental.  The  danger  was  unknown.  The  injury  was  not  designed. 
We  think  there  was  not  such  a  voluntary  exposure  to  danger  as  to 
fairly  bring  the  act  of  the  insured  within  the  meaning  of  the  excep- 
tion.    *     *     *  ' 


'  In  Equitable  Accident  Co.  v.  Oshorn,  90  Ala.  2or,  one  of  the  exceptions,  not 
covered  by  the  accident  policy,  was  "  voluntary  e.xposure  to  unnecessary  dan- 
ger." The  court  said  (p.  206):  "  The  evidence  in  the  record  fails  to  satisfy  us 
that  the  insured  was  guilty  of  voluntarily  exposing  himself  to  unnecessary  dan- 
ger, and  any  degree  of  negligence  short  of  this  will  not  operate  to  defeat  a  recov- 
ery. May  on  Insurance  (2d  ed.),  §  530  He  was  approaching  the  arriving 
railway  train,  for  the  purpose  of  getting  the  mail  for  the  postmaster.  True,  he 
was  moving  rapidly.  But  he  made  an  effort  to  check  his  speed,  as  he  reached 
the  sloping  bank  which  led  down  to  the  side  track  of  the  railroad;  and  in  doing 
this,  he  stumbled,  and  came  in  collision  with  the  engine.     But  for  the  accident 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         287 
5.   Poison. 

TRAVELERS'   INSURANCE  CO.  v.  DUNLAP. 
160  Ills.  642.  —  1896. 

Action  upon  an  accident  policy.  The  policy  provided  that  the 
insurance  did  not  cover  death  resulting  from  "  taking  poison." 

Mr.  Justice  Carter.  —  It  is  settled  by  the  judgments  below  that 
the  death  of  the  insured  was  caused  by  accident.  Mistaking  a  bottle 
of  carbolic  acid  for  peppermint,  which  he  wished  to  take  for  sjme 
ailment,  he  poured  a  portion  of  the  acid  into  a  glass  of  water,  drank 
it,  and  died  from  the  poison.  The  only  question  presented  for  our 
decision  is,  is  the  appellant  exempted  from  liability  on  the  ground 
that  the  insured  died  from  "  taking  poison,"  within  the  meaning  of 
the  policy?  Appellant  contends  that  it  is  so  exempt  by  the  terms 
of  the  contract;  that  the  term  "taking  poison,"  as  used  in  the 
policy  and  according  to  its  ordinary  signification,  includes  accidental 
as  well  as  intentional  taking,  and  cites  Pollock  v.  United  States  Mutual 


of  stumbling,  the  inference  is  fair  that  he  would  not  have  been  injured.  The 
efficient  and  pro.ximate  cause  of  the  death,  therefore,  was  the  accident,  as  much 
as  if  the  collision  had  been  with  a  huge  stone,  instead  of  with  Mt  steim-chesL 
on  the  side  of  the  engine." 

In  Corn7i<cll  \-.  Assoc,  6  N.  D  201,  an  attempt,  while  hunting,  to  scale  a  bank 
with  a  loaded  gun  in  hand  was  held  not  a  voluntary  exposure  to  unnecessary 
danger.  In  Tucker  v.  Co.,  50  Hun,  50,  there  was  the  same  holding  where  the 
insured,  a  farmer,  living  oh  the  shore  of  Lake  Ontario,  losi  his  life  by  the  cap- 
sizing of  a  boat  while  on  a  mission  of  rescue  during  a  storm.  See  also  Tuttle 
V.  Co.,  134  Miss.  175. 

In  Stone  v.  U.  S.  Casualty  Co.,  34  N.  J.  L.  371,  an  adion  upon  an  accide.it 
policy,  the  policy  provided  "  the  party  insured  is  required  to  use  all  due  dili- 
gence for  personal  safety  and  protection."  Upon  this  point  the  court  said ; 
"  It  was  insisted  that  the  assured  did  not  use  due  diligence  for  his  personal 
safety  and  protection.  The  circumstances  were  these:  The  assured  was  hav- 
ing a  small  barn  put  up,  and  while  the  same  was  building,  had  gone  up  to  the 
second  story  to  look  on  at  the  work.  Stepping  to  one  side  he  tro  1  upon  a  joisi 
which,  from  a  concealed  defect,  broke,  and  he  was  killei  by  falling  to  the 
ground.  At  the  time  of  the  accident  he  was  heavily  clad  in  t  ato  overcoats  and 
was  said  to  be  an  awkward  man.  These  facts  do  not  show  any  disregard  to 
his  personal  safety,  on  the  pan  of  the  assured.  There  was  no  rashness  or 
undue  exposure  in  placing  himself  in  the  position  described,  and  the  breaking 
of  the  timber,  which  was  the  proximate  cause  of  the  death,  was  a  pure  acci- 
dent. Besides,  this  was  altogether  a  question  for  the  jury,  and  they  were 
instructed  in  the  language  (jf  the  charge  to '  lake  all  the  circumstances  into  con- 
sideration in  determining,  as  a  question  of  fact,  whether  his  exposure  was  such 
as  a  pruientman  would  not  subject  himself  to,  and  whether  he  exercised  that 
degree  of  care  v.hich  would  be  requited  of  a  prudent  man.'  The  verdict  in 
favor  of  the  assured,  on  this  point,  is  amply  warranted  by  the  proofs." 


2S8  THE   TERMS   OF   THE    INSURANCE    CONTRACT. 

Accident  Ass.,  102  Pa.  St.  230,  which  so  holds.  Appellee,  however, 
contends  (and  in  this  she  is  supported  by  the  Appellate  and  Circuit 
Courts),  that  the  words  "  taking  poison,"  as  employed  in  the  policy 
and  in  view  of  the  rules  of  construction  applied  by  the  courts  to  such 
instruments,  mean  the  voluntary,  intentional  taking  of  poison,  and 
do  not  include  cases  of  accidental  poisoning;  and  counsel  contend 
that  this  court  has,  in  effect,  so  decided  in  Healey  v.  Mittual  Accident 
Ass.,  133  111.  556.  While  the  precise  point  here  at  issue  was  not 
discussed  in  the  opinion  in  the  Healey  case,  yet  it  was  involved  in 
the  decision,  and  is  within  the  reasoning  there  employed.  The  lead- 
ing cases  on  this  subject  were  reviewed  in  the  Heiley  case,  including 
I'au/  V.  Travellers  Ins.  Co.,  112  N.  Y.  472,  and  Pollock  v.  United 
States  Mutual  Accident  Ass.,  supra,  di^d.  it  was  then  said,  (p.  564): 
"  While  we  recognize  the  high  ability  of  the  court  in  which  the  case  " 
{the  Pennsylvania  case)  "  was  decided,  we  are  not  disposed  to  fol- 
low the  rule  there  adopted.  We  think  the  rule  established  by  the 
Court  of  Appeals  of  New  York  one  better  calculated  to  carry  out 
the  true  intention  of  the  parties  when  the  contract  of  insurance  was 
entered  into,  and  one,  too,  more  nearly  in  harmony  with  the  current 
of  authority  bearing  on  the  question."  See,  also,  Pickett  v.  Pacific 
Mutual  Life  Ins.  Co.,  144  Pa.  St.  79;  Mcnneilly  v.  Employers'  Liability 
Ass.   Corp.,  148  N.  Y.  596. 

We  are  inclined  to  the  opinion  that  the  term,  "  taking  poison," 
would  also,  in  common  parlance,  when  used  without  any  qualifying 
words,  be  understood  to  mean  an  intelligent  and  conscious  act.  If, 
in  speaking  of  the  cause  of  the  death  of  another,  we  should  say, 
"  he  took  poison,"  we  would  most  commonly  be  understood  to  mean 
that  his  act  in  taking  poison  was  intentional,  rather  than  accidental, 
and  it  would  hardly  be  deemed  necessary  to  say  "  he  intentionally 
took  poision,"  and  if  it  were  designed  to  avoid  such  understanding 
we  would  naturally  say  "  he  accidentally  took  poison,"  or  would  use 
some  other  qualifying  words  indicating  that  the  act  was  accidental 
or  its  cause  doubtful  or  unknown.  It  must,  however,  be  conceded 
that  the  meaning  of  the  term  in  the  respect  mentioned  is  not  free 
from  doubt.  Able  and  learned  arguments  have  been  made  on  each 
side  of  the  question  by  counsel,  and  cases  are  cited  showing  that 
courts  of  high  authority  do  not  agree  on  the  subject.  It  would, 
therefore,  seem  to  be  eminently  proper,  in  such  a  case,  to  apply  the 
well-known  rule  of  construction  applicable  to  such  instruments, 
that  where  there  is  a  doubt  or  uncertainty  as  to  the  meaning  of  the 
terms  employed,  the  language,  being  that  of  the  insurer,  must  be 
liberally  construed  in  favor  of  the  insured,  so  as  not  to  defeat, 
without  a  plain  necessity,  his  claim  to  indemnity,  which,  in  making 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT,         289 

the  insurance,  it  was  his  object  to  secure.  Niagara  Fire  Ins.  Co.  v. 
Scamino/i,  100  111.  644;  Healcy  v.  Mutual  Accident  Ass.,  supra;  May 
on  Insurance,  §  175. 

Counsel  for  appellant  insist  that,  using  their  own  language,  "an 
exception  from  an  accident  policy  can  only  be  of  some  accident 
otherwise  included  within  it,  for  if  the  cause  of  injury  or  death  be 
not  accidental,  it  is  manifestly  not  within  the  scope  of  the  policy 
at  all.  Hence  an  exception  of  '  taking  poison  '  means,  ex  vi  termini, 
the  exception  of  an  accidental  taking  of  poison."  It  is  clear,  how- 
ever, that  the  so-called  exception  is  something  more  than  a  mere 
exception  excluding  what  would  otherwise  be  included  as  accidents, 
for  suicide  by  a  sane  person  could  not  be  said  to  be  an  accident, 
yet  it,  with  other  causes  of  death  and  injury  not  accidental,  is 
embraced  in  the  exception. 

It  is  also  said  that  the  term  "  taking  poison  "  cannot  be  limited 
in  its  meaning  to  the  intentional  taking  of  poison,  for  the  reason 
that  death  so  caused  is  covered  by  the  clause  relating  to  suicide, 
and  to  so  construe  it  would  give  no  force  whatever  to  the  words 
"  taking  poison."  Counsel  are  mistaken  also  in  this  contention. 
When  the  entire  provision  in  which  these  words  occur  is  considered, 
it  is  too  clear  for  argument  that  it  is  recognized  that  death  may 
result  wholly  or  partly,  directly  or  indirectly,  from  voluntarily  taking 
pjison  without  any  suicidal  intent,  and  that  death  so  caused,  while 
excepted  from  the  risks  covered  by  the  policy,  would  not  be  so 
excepted  by  the  suicide  clause.  Besides  different  kinds  of  accidents 
and  injuries  not  resulting  in  death  caused  by  the  voluntarily  taking 
of  poison,  might  be  excluded  from  such  risks  by  this  provision.  It 
would  not  be  difficult  for  the  insurer  to  use  language  which,  in  respect 
to  the  question  here  under  consideration,  would  be  free  from  doubt. 
A  policy  of  insurance  should  not  be  so  framed  as  to  be  susceptible 
of  one  construction  in  the  hands  of  the  soliciting  agent,  and  of  quite 
a  different  one  in  the  hands  of  the  adjuster. 

Finding  no  error  in  the  record  the  judgment  of  the  Appellate 
Court  is  affirmed. 

Judgment  affirmed.' 


'  Contra  is  McGlother  v.  Co.,  89  Fed.  685,  where  the  exception  clause  was  "  death 
*  *  *  resulting  from  poison;  "  and  also  Early  v.  Co..  113  Mich.  58,  the  court 
saying:  "  We  have  not  overlooked  Travelers'  Ins.  Co.  v.  Dunlap,\bo  III.  642. 
But  in  the  present  case,  the  expression  is  '  death  by  poison.'  We  know  of  no 
case  which  goes  to  the  extent  of  holding  that  such  an  expression  in  the  excep- 
tion contained  in  the  policy  does  not  avoid  it." 
LAW  OF  INSURANCE  —  Xq 


290  THE    TERMS    Ul"    THE    INSURANCE    CONTRACT. 

6.    Inhaling  CiAS. 

PICKETT  P.  PACIFIC  MUTUAL  LIFE  INS.  CO. 

144  Pa.  79.  —  1891. 

Action  upon  an  accident  policy. 

Mr.  Justice  Stekrett.  — The  undisputed  facts,  upon  which  the 
jury  in  this  case  was  instructed  to  find  for  the  plaintiff  the  full 
amount  of  his  claim,  are  briefly  as  follows: 

On  June  4,  1889,  the  plaintiff's  intestate,  John  W.  Moore,  received 
and  paid  for  the  policy  of  insurance  on  which  this  suit  was  brought, 
a  copy  of  which  will  be  found  in  the  record.  Returning  to  his 
boarding  house  the  same  evening  he  informed  his  landlady  that  he 
had  had  no  dinner,  and  requested  that  his  supper  be  prepared.  He 
then  went  to  the  well  in  the  open  yard  for  a  drink,  and  finding  that 
the  pump  required  priming  with  water,  he  remarked  that  he  would 
fix  it,  so  as  to  obviate  that  difficulty  in  the  future.  After  procuring 
a  hatchet,  and  removing  planks  from  the  opening  at  the  top,  he 
descended  into  the  dug-out  portion  of  the  well,  which  was  four  or 
five  feet  wide  and  only  ten  or  twelve  feet  deep,  for  the  purpose  of 
closing  a  small  opening  in  the  iron  pipe,  about  midway  down.  A  few 
minutes  later  his  lifeless  remains  were  foand  at  the  bottom  of  the 
well.  He  died  from  asphyxia  or  suffocation  due  to  the  accidental 
and  unconscious  inhalation  of  carbonic  acid  or  other  deadly  gas  that 
had  unexpectedly  accumulated  in  the  dug-out  portion  of  the  shallow 
well.  The  well,  with  which  deceased  was  familiar,  and  in  which 
he  had  been  shortly  before,  was  one  of  those  known  as  a  "  driven 
well,"  made  by  driving  an  iron  pipe  into  the  ground  to  the  depth, 
in  this  case,  of  about  forty  feet.  For  the  distance  of  about  ten  or 
twelve  feet  from  the  top  the  earth  around  the  iron  pipe  was  dug 
out  so  as  to  form,  as  above  stated,  an  open  well  of  about  four  or  five 
feet  in  diameter,  in  which  there  was  little  or  no  water.  The  top  of 
the  well  was  covered  with  plank.  The  deceased  was  a  strong, 
healthy  man. 

His  sudden  and  wholly  unexpected  death,  under  the  circum- 
stances above  stated,  and  within  a  few  hours  after  he  had  procured 
the  policy  of  insurance,  undoubtedly  resulted  from  external,  vio- 
lent, and  accidental  injuries  or  means,  and  without  any  conscious  or 
voluntary  act  on  his  part.  There  was  no  evidence,  nor  was  it  even 
suggested,  that  he  had  committed  suicide,  or  that  he  was  wanting 
in  reasonable  care,  or  that  he  voluntarily  exposed  himself  to  dan- 
ger. In  describing  the  condition  in  which  he  found  the  body  of 
deceased  the  physician  who  made  the  post-mortem  examination 
testified:   "The  general  surface  of  the   body  was  of  a  livid   bluish 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         29I 

color.  Th.e  lips  and  tongue  were  blue.  The  right  side  of  the  head 
was  partially  distended  with  dark  blood;  the  left  side  was  nearly 
empty.  The  lungs  contained  more  blood  than  they  would  under 
different  circumstances;  they  were  somewhat  congested.  The  pul- 
monary arteries  were  distended  with  blood.  The  liver  was  slightly 
congested,  and  also  the  kidneys;  there  was,  however,  no  disease  of 
the  kidneys,  no  disease  of  any  of  the  internal  organs.  *  *  *  His 
death  was  caused  by  asphyxia,  due  to  the  inhalation  of  gas."  If 
the  latter  undisputed  and  undoubtedly  correct  conclusion  of 
fact  needed  any  confirmation,  it  may  be  found  in  the  testimony  as 
to  the  effect  of  the  same  noxious  gas  on  those  who  went  to  the 
relief  of  the  deceased,  and  assisted  in  removing  his  remains  from 
the  well.  It  shows  how  narrowly  they  escaped  a  similar  violent  and 
accidental  death.     *     *     * 

In  view  of  the  undisputed  facts,  of  which  the  above  is  an  outline, 
the  learned  president  of  the  Common  Pleas  refused  to  afifirm  defend- 
ant's points  for  charge,  some  of  which  are  predicated  of  the  forego- 
ing facts,  and  instructed  the  jury  that  upon  the  undisputed  facts 
before  them  the  plaintiff  was  entitled  to  recover,  and  there  was 
accordingly  a  verdict  and  judgment  in  his  favor.  This  action  of 
the  court  in  refusing  defendant's  points,  and  instructing  the  jury  in 
plaintiff's  favor,  are  the  subjects  of  complaint  in  the  several  specifi- 
cations of  error. 

The  first  and  main  point  was  as  follows:  "  The  clause  in  the 
policy  of  insurance  sued  on,  to  wit,  '  This  insurance  shall  not  cover 
*  *  *  death  or  injury  resulting  from  or  attributable  partially  or 
wholly  to  *  *  *  inhalation  of  gas,'  applies  to  the  case  of  death 
resulting  from  asphyxia  caused  by  inhaling  gas  accumulated  at  the 
bottom  of  the  well."  This,  in  connection  with  the  remaining  seven 
points,  was  rightly  refused.  According  to  the  undisputed  facts 
above  referred  to,  the  death  of  the  insured  was  caused  by  external, 
violent,  and  accidental  means,  and  without  any  conscious  or  volun- 
tary act  on  his  part.  No  one,  knowing,  as  he  did,  the  shallowness 
of  the  dug-out  portion  of  the  well,  would  ever  suspect  the  presence 
of  noxious  gas  therein.  Doubtless,  he  never  for  a  moment  con- 
templated the  slightest  danger.  His  death  was  purely  accidental; 
quite  as  much  so  as  if  he  had  been  suddenly  and  unexpectedly 
engulfed  in  water  and  drowned.  The  deadly  but  invisible  gas  by 
which  he  was  unconsciously  and  accidentally  enveloped  was 
undoubtedly  the  external  and  violent  cause  of  his  injury  and  death. 
According  to  the  physician's  testimony  above  quoted,  its  violent 
effect  upon  the  vital  organs  of  the  deceased  was  plainly  visible  at 
the  time  of  the  post-mortem  examination. 


292  thh:  terms  of  the  insurance  contract. 

As  was  well  said  in  Paul  v.  Insurance  Co.,  112  N.  Y.  472,  which  io 
principle  rules  this  case:  "  As  to  the  point  raised  by  appellant,  that 
the  death  was  not  caused  by  external  and  violent  means,  within  the 
meaning  of  the  policy,  we  think  it  a  sufficient  answer  that  the  gas  in 
the  atmosphere,  as  an  external  cause,  was  a  violent  agency,  in  the 
sense  that  it  worked  upon  the  intestate  so  as  to  cause  his  death. 
That  a  death  is  the  result  of  accident,  or  is  unnatural,  imports  an 
external  and  violent  agency  as  the  cause."  In  that  case  the  policy 
on  which  suit  was  brought  provided  that  the  insurance  should  not 
extend  to  death  caused  "by  inhaling  gas."  It  appeared  that  the 
insured  was  found  dead  in  bed.  Gas  had  escaped  in  the  room,  and 
death  was  caused  by  breathing  the  atmosphere  of  the  room  filled 
with  gas.  It  was  held  that  death  was  not  caused  by  the  inhaling  of 
gas,  within  the  meaning  of  the  policy.  The  company  relied  upon 
the  same  narrow  and  technical  defense  that  is  made  by  the  defend- 
ant in  this  case.  In  an  able  opinion,  reported  in  45  Hun,  313,  the 
learned  judge  of  the  General  Term,  whose  judgment  was  afterwards 
affirmed  by  the  Court  of  Appeals,  said,  inter  alia:  "  Was  the  death 
of  the  intestate  caused  by  or  through  '  external,  violent  and  acci- 
dental means,'  within  the  language  of  the  policy?  *  *  *  We 
should  say  the  death  was  due  to  external  and  violent  means  as  clearly 
as  drowning.  *  *  +  The  cause  of  death  came  from  outside,  as 
surely  as  would  a  rifle  ball,  or  water  in  the  case  of  drowning.  The 
escape  of  gas  into  the  room  was  violent,  in  the  same  sense  that 
would  be  the  flow  of  water  into  a  wrecked  vessel.  In  either  case 
the  external  means  constitute  the  cause  which  produces  death.  It 
is  a  violent  death,  produced  by  an  external  power,  not  natural. 
Some  poisons,  such  as  opium  and  chloral,  produce  no  violent  action 
on  the  human  system.  The  man  who  descends  into  a  well  of  car- 
bonic-acid gas  is  killed  with  no  greater  violence,  perhaps,  than  was 
the  intestate.  Yet  in  all  these  cases  the  result  would  be  called  a 
violent  death.  *  *  *  \Ve  also  think  the  words  '  inhaling  of  gas  ' 
were  used  to  designate  those  common  uses  of  gas  in  dentistry, 
surgery,  etc.  *  *  *  Evidently  an  exception  from  death  caused  by 
a  surgical  operation  was  not  broad  enough  to  include  the  use  of 
anaesthetics  preparatory  to  the  operation.  It  contemplated  a  volun- 
tary and  intelligent  act  by  the  assured,  not  an  involuntary  and 
unconscious  act." 

On  this  question  the  Court  of  Appeals,  in  affirming  the  decision 
of  the  General  Term,  said:  "  A  careful  consideration  of  this  instru- 
ment, and  of  the  scope  and  design  of  its  provisions,  leads  us  to  the 
conclusion  that  appellant  must  fail  in  its  contention.  *  *  *  jj^ 
expressing  its  intention  not  to  be  liable  for  death  from  '  inhalin-,  of 


TERMS   OF   THE    ACCIDENT   INSURANCE   CONTRACT.         293 

gas  '  the  company  can  only  be  understood  to  mean  a  voluntary  and 
intelligent  act  of  the  insured,  and  not  an  involuntary  and  uncon- 
scious act.  Read  in  that  sense,  and  in  the  light  of  the  context, 
these  words  must  be  interpreted  as  having  reference  to  medical  or 
surgical  treatment,  in  which,  ex  vi  termini,  would  be  included  the 
dentist's  work  or  a  suicidal  purpose.  Of  course,  the  deceased 
must  have,  in  a  certain  sense,  inhaled  gas;  but,  in  view  of  the  finding 
that  death  was  caused  by  accidental  means,  the  proper  meaning  of 
the  words  compels,  as  does  the  logic  of  the  thing,  the  conclusion 
that  there  was  not  that  voluntary  or  conscious  act,  necessarily 
involved  in  the  process  of  inhaling.  An  accident  is  the  happening 
of  an  event  without  the  aid  and  the  design  of  the  person,  and  which 
is  unforeseen.  *  *  *  'pg  inhale  gas  requires  an  act  of  volition 
on  the  person's  part  before  the  danger  is  incurred.  Poison  may  be 
taken  by  mistake,  or  poisonous  substances  may  be  inadvertently 
touched;  but,  whatever  the  motive  of  the  insured,  his  act  precedes 
either  fact.  *  *  *  jf  ^j^g  policy  had  said  that  it  was  not  to 
extend  to  any  death  caused  wholly  or  in  part  by  gas,  it  would  have 
expressed  precisely  what  the  appellant  now  says  is  meant  by  the 
present  phrase,  and  there  could  have  been  no  room  for  doubt  or 
mistake.  Policies  of  insurance  are  to  be  liberally  construed,  and, 
ai  in  all  contracts,  conditions  are  to  be  construed  strictly  against 
those  for  whose  benefit  they  are  reserved." 

The  principles,  so  well  stated  and  enforced  in  the  cases  above 
cited,  were  afterwards  approvingly  considered  in  Bacon  v.  Associa- 
tion, 123  N.  Y.  304.  In  further  support  of  the  same  principles,  refer- 
ence might  be  made  to  other  authorities,  among  which  are:  May  on 
Insurance,  631,  in  which  reference  is  made  to  Trew  v.  Assitra/ice 
Co.,  6  H.  &  N.  839;  Winspcar  v.  Insurance  Co.,  6  Q.  B.  D.  42  (29 
Eng.  R.  488);  Insurance  Co.  v.  Craudal,  120  U.  S.  532;  Mallory  v. 
Insurance  Co.,  47  N.  Y.  52;  North  American  Ins.  Co.  v.  Burroughs, 
69  Pa.  43;  McGlinchey  v.  Casualty  Co.,  80  Me.  251;  Eggenberger  \. 
Association,  41  Fed.  R.  172;  U.  S.  Mut.  Ass'n  v.  Nciv7nan,  (Va.)  3  S. 
E.  Rep.  805;  but  further  elaboration  is  unnecessary. 

This  case  is  not  ruled  by  Pollock  v.  Accident  Ass'n,  102  Pa.  230,  on 
which  defendant  relies.  While  that  case  may  well  stand  upon  its 
own  peculiar  facts,  we  think  the  present  case  is  clearly  distinguish- 
able in  its  controlling  facts,  as  well  as  in  the  principles  applicable  to 
them.  In  that  case  the  injury  did  not  result  from  external,  violent, 
and  accidental  means.  The  fatal  drug  was  voluntarily  and  inten- 
tionally taken  by  the  deceased.  In  deciding  that  case  this  court 
never  could  have  intended  to  lay  down  the  broad  rule  that  in  con- 
struing an  accident  policy  there  is  no  distinction  between  external, 


294  THE   TERMS   OF   THE    INSURANCE    CONTRACT, 

violent,  and  accidental  causes  of  death,  and  those  cases  in  which 
death  results  from  voluntary  acts.  What  was  decided  in  that  case 
was  that,  under  the  various  clauses  of  the  policy  ?ued  on,  there 
could  be  no  recovery,  and  it  was  unimportant  whether  the  means 
arose  from  the  designing  act  of  the  insured  or  otherwise.  *  *  * 
Without  further  referring  to  the  specifications  of  error,  it  is  suffi- 
cient to  say  that  neither  of  them  is  sustained.  The  deceased  was 
accidentally,  violently,  and  fatally  asphyxiated  by  the  unknown 
presence  of  a  fluid  foreign  to  his  person.  If  that  fluid  had  been  oil, 
smoke,  water,  or  molten  metal,  the  result  would  have  been  sub- 
stantially the  same.  Death  caused,  not  so  much  by  the  inhalation 
of  the  fluid  as  by  its  action  in  excluding  life-supporting  air,  would 
have  inevitably  resulted.  A  fair  construction  of  the  policy  leads 
to  the  conclusion  reached  by  the  court  below,  that  death  resulting 
from  causes  such  as  killed  the  intestate  is  not  within  any  of  the 
exemptions  relied  on  by  the  company. 

Judgment  affirmed. 


7.    OVER-EXERTION. 


RUSTIN  V.   STANDARD  LIFE  AND  ACCIDENT 
INSURANCE  CO. 

79  N.  W.  712  (Neb.) —  1S99. 

Action  on  an  accident  policy  issued  to  plaintiff  and  containing  a 
stipulation  exempting  the  defendant  from  liability  for  injuries  occa- 
sioned by  unnecessary  lifting  and  voluntary  overexertion. 

Plaintiff,  the  president  of  a  pleasure  resort,  was  injured  by  lift- 
ing a  dumbbell  purporting  to  weigh  450  pounds,  used  by  a  performer 
at  his  resort.  Plaintiff  testified  that  he  was  in  good  physical  con- 
dition at  the  time,  that  in  his  opinion  the  dumbbell  did  not  weigh 
over  300  pounds,  and  that  his  purpose  in  lifting  it  was  to  detect 
that  the  bell  was  under  weight  and  so  protect  his  resort  and  the  pub- 
lic from  imposition.  The  trial  court,  at  the  conclusion  of  plaintiff's 
testimony,  instructed  the  jury  to  find  for  the  defendant.  Plaintiff 
appeals. 

Sullivan,  J.  —  *  *  *  Rustin's  injury,  it  is  true,  was  the 
natural  result  of  overexertion  while  attempting  to  raise  the  dumb- 
bell and  bring  it  to  a  horizontal  position ;  but  that  fact  is  not  of  itself 
conclusive  in  favor  of  the  company.  The  contract  right  to  indemnity 
was  not  lost  because  the  injury  resulted  from  overexertion  unless 
the  overexertion  was  conscious  and  intentional.  Indemnity  Co.  v. 
Dorgan,    7    C.    C.    A.    581,   58    Fed.   952;  Johnson  v.    Accident    Co. 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         295 

(Mich.)  72  N.  W.  1 1 15.  Surely,  it  cannot  be  said  as  a  matter  of 
law  that  the  plaintiff  was  aware  of  the  probable  result  of  his  act, 
or  that  he  acted  with  a  reckless  disregard  of  consequences  likely 
to  ensue.  That  he  failed  to  accurately  gauge  his  own  strength,  or 
else  to  correctly  estimate  the  weight  of  the  dumbbell,  is  evident; 
but  accident  insurance  is  not  designed  to  furnish  indemnity  only  in 
cases  where  the  policy  holder  orders  his  conduct  with  grave  circum- 
spection, and  a  provident  foresight  of  consequences.  Mere  contri- 
butory negligence  is  no  answer  to  an  action  on  a  contract  of 
insurance.  Neither  is  there  any  absolute  inference  that  the  lifting 
was  unnecessary.  According  to  the  plainti.f's  testimony,  the  act 
was  the  product  of  a  reasonable  motive,  and  was  performed  in 
the  line  of  duty.  *  *  *  Circumstances  in  evidence  discredit  the 
reason  given  for  the  lifting,  but  they  do  not  indisputably  condemn 
it  as  false.  The  question  was  for  the  jury  to  determine.  The  judg- 
ment is  reversed  and  the  cause  remanded.' 


8.  Intoxicants. 

UNION  MUTUAL  LIFE  INS.  CO.  v.  REIF. 

36  Ohio  St.  596.  —  1881. 

The  action  below  was  founded  upon  a  policy  of  insurance  upon 
the  life  of  Charles  Reif.  It  is  averred  that  the  following  answers 
made  by  Charles  Reif  in  his  application,  were  false  and  untrue: 
"  Has  the  party  whose  life  is  to  be  insured  ever  been  intemperate?  " 
Answer:  "No."  "Is  the  party  now  of  correct  and  temperate 
habits?"     Answer:   "Yes." 

Johnson,  J.  — The  ninth  request  was  that  if  the  jury  found  that 


'  "  This  action  is  brought  upon  an  '  accident  policy  '  issued  by  the  defendant 
to  the  plaintiff,  and  is  to  recover  for  injuries  sustained  while  riding  in  a  bicycle 
race.  The  following  provision  was  contained  in  the  policy:  '  This  insurance 
shall  not  extend  to  or  cover  *  *  *  injury  resulting  from  *  *  *  volun- 
tary over-exertion,  either  voluntary  or  unnecessary  exposure  to  danger,  or  to 
obvious  risk  of  injury.'  *  *  *  it  cannot  be  said,  as  a  matter  of  law,  that 
the  plaintiff  was  over-exerting  himself,  nor  that  he  voluntarily  exposed  himself 
to  danger  by  entering  into  the  race.  Different,  and  equally  intelligent  and 
unbiased  men  might  fairly  differ  in  opinion  as  to  whether  or  not,  by  taking 
part  in  such  a  race  any  risk  of  injury  was  necessarily  incurred,  and  we  think 
Jhe  court  was  right  in  leaving  the  decision  of  that  question  to  the  jury.  Hart 
v.  H.  R.  Bridge  Co.,  80  N.  Y.  622;  Salt  Springs  Nat.  Bank  v.  Sloan,  135  Id. 
371-383."  —  Keeffd  V.  Soc,  4  App.  Div.  (N.  Y.)  392. 


2^6  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

the  applicant  was,  before  the  date  of  his  application,  addicted  to 
periodical  spreeing  or  getting  drunk,  without  the  knowledge  of  the 
company  or  its  agents,  the  policy  would  be  void,  even  though  there 
were  periods  of  longer  or  shorter  duration  in  which  he  was  duly 
sober.  The  eleventh  was  in  substance  the  same,  that,  if  "  he  was 
in  the  habit  of  periodically  getting  drunk,  even  though  there  were 
times  and  occasions  of  longer  or  shorter  duration  in  which  he 
was  duly  sober,"  the  policy  was  void.  Each  of  these  requests  was 
refused,  and  in  lieu  thereof  the  court  charged  that  it  was  obvious 
that  these  questions  are  not,  whether  the  insured  was  ever  drunk, 
or  whether  he  ever  used  intoxicating  liquors;  "  but  whether  he  was 
ever  intemperate,  that  is,  whether  at  any  period  of  his  life  his  usual 
and  daily  habits  were  such  as  to  constitute  and  render  him  what  is 
known  as  an  intemperate  man  —  a  man  habitually  under  the  influence 
of  intoxicating  liquor. 

An  occasional  excess  in  the  use  of  intoxicating  liquor  does  not,  it 
is  true,  constitute  a  habit,  or  make  a  man  intemperate,  within  the 
meaning  of  this  policy;  but  if  the  habit  has  been  formed  and  is 
indulged  in  of  drinking  to  excess  and  becoming  intoxicated,  whether 
daily  and  continuously,  or  periodically,  with  sober  intervals  of  greater 
or  less  length,  the  person  addicted  to  such  a  habit  cannot  be  said  to 
be  of  temperate  habits,  within  the  meaning  of  this  policy.  In  view 
of  the  fact  that  the  evidence  strongly  tended  to  show  that  it  was  the 
habit  of  the  insured  to  indulge  to  excess  at  frequent  times,  and  did 
not  tend  to  show  a  case  of  daily  or  continuous  state  of  intoxication, 
this  charge  was  clearly  misleading.  From  it  the  jury  might  well 
understand,  and  in  view  of  the  whole  evidence,  we  think,  may  rea- 
sonably have  understood,  that  Charles  Reif  was  of  correct  and 
temperate  habits,  although  it  was  his  habit  to  get  drunk  periodically 
and  frequently,  with  sober  intervals  of  longer  or  shorter  duration. 
The  habit  of  using  intoxicating  liquors  to  excess  is  the  result  of 
indulging  a  natural  or  acquired  appetite,  by  continued  use,  until  it 
becomes  a  customary  practice.  This  habit  may  manifest  itself  in 
practice  by  daily  or  periodical  intoxication  or  drunkenness.  Within 
the  purview  of  these  questions  it  must  have  existed  at  some  previous 
time,  or  at  the  date  of  the  application,  but  it  is  not  essential  to 
its  existence  that  it  should  be  continuously  practiced,  or  that  the 
insured  should  be  daily  and  habitually  under  the  influence  of  liquor. 
Where  the  general  habits  cf  a  man  are  either  abstemious  or  tem- 
perate, an  occasional  indulgence  to  excess  does  not  make  him  a  man 
of  intemperate  habits.  But  if  the  habit  is  formed  of  drinking  to 
excess,  and  the  appetite  for  liquor  is  indulged  to  intoxication,  either 
constantly   or   periodically,    no   one   will  claim   that   his  habits  are 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT.         297 

temperate,  though  he  may  be  duly  sober  for  longer  or  shorter  periods 
in  the  intervals  between  the  times  of  his  debauches.     *     *     * 

Judgment  reversed  and  cause  remanded  for  a  new  trial.' 


SHADER  V.  RAILWAY  PASSENGER  ASSURANCE  CO. 
66  N.  Y.  441.  —  1876. 

Action  to  recover  the  amount  of  an  accident  insurance  policy 
issued  by  the  defendant  in  favor  of  one  Wesley  Shader.  After 
the  policy  was  issued  Shader  dined  with  a  friend.  During  the 
dinner  he  and  his  friend  were  talking  about  shooting.  Shader  said 
his  friend  "  could  not  shoot  a  frog;"  the  latter  responded  that  he 
"could  shoot  his  (Shader's)  ear."  The  latter  told  him  he  might 
try  "for  ten  cents."  He  did  try  and  killed  Shader.  Both  men 
were  under  the  influence  of  intoxicating  drinks  at  the  time. 

Miller,  J. — The  question  arising  directly  upon  this  appeal 
relates  to  the  charge  of  the  judge  and  to  his  refusal  to  charge  as 
requested  by  the  counsel  for  the  defendant.  The  policy  provided 
that:  "  No  claim  shall  be  made  under  this  policy  where  the  death 
or  injury  may  have  happened  while  the  insured  was,  or  in  conse- 
quence of  his  having  been,  under  the  influence  of  intoxicating 
drinks."  The  judge  in  his  charge  to  the  jury  stated  that  the  ques- 
tion was  not  simply  whether  the  deceased  was  under  the  influence 
of  intoxicating  liquors  at  the  time,  but  it  was  whether  the  injury 
occurred  in  consequence  of  that,  and  it  was  the  natural  and  reason- 
able result  of  his  being  in  that  condition;  and  he  charged,  in  sub- 
stance, that  if  the  injury  happened  in  consequence  of  his  being 
under  the  influence  of  intoxicating  liquors,  the  plaintiff  could  not 
recover.  The  court  was  requested  to  charge  that,  if  at  the  time 
Shader  was  shot  he  was  under  the  influence  of  intoxicating  drinks, 
the  plaintiff  could  not  recover;  and  this  was  so  whether  the  influence 
of  the  liquor  occasioned  the  discharge  of  the  pistol  or  not.  This 
was  declined.  Exceptions  were  duly  taken  to  the  portion  of  the 
charge  made  and  the  refusal  to  charge. 

The  first  inquiry  which  presents  itself  to  our  consideration  is  the 
construction  to  be  placed  upon  the  proviso  referred  to.  An  exact 
and  accurate  interpretation  of  the  language  employed  manifestly 
conveys  the  idea  that  it  was  intended  to  comprehend  all  cases  where 
injury  or  death  might  happen  while  the  assured  was  under  the  influ- 
ence of  intoxicating  drinks,  as  well  as  such  as  might  occur  by  reason 
of  the  use  thereof.     As  to  the  first  class  of  cases  stated  in  the  pro- 

'  See  also  Northwestern  Life  Ins.  Co.  v.  Bank,  122  U.  S.  501;  AUtna  Life  Ins. 
Co.  V.  Davey,  123  U.  S.  739. 


298  THE    TERMS    OF   THE    INSURANCE   CONTRACT. 

viso,  the  words  imply  that  it  is  not  required  that  the  use  of  intoxi- 
cating drinks  should  be  the  moving  cause  in  proJucing  the  injury  or 
deatli,  and  quite  sufficient  to  avoid  a  liability  that  the  person  in 
whose  favor  the  policy  was  issued  was  under  the  influence  of  such 
stimulants,  without  regard  to  the  effect  which  might  result  from 
sjch  a  condition.  The  limitation  in  the  policy  related  to  the  con- 
dition of  the  insured,  not  to  the  cause  which  might  produce  his 
death.  And  here  lies  the  distinction  which  is  to  be  drawn  in  its 
construction,  for,  by  any  other  or  different  interpretation,  the  words 
used  would  not  only  be  unnecessary  but  meaningless  and  without 
point.  As  the  policy  was  rendered  void  if  the  assured  was  injured 
or  killed  while  under  the  influence  of  intoxicating  drinks,  it  was  not 
essential,  to  work  a  forfeiture,  that  injury  or  death  should  occur  in 
consequence  of  the  use  of  the  same. 

As  to  the  second  class  of  cases  the  policy  was  designed  to  provide 
for  the  possible  contingency  which  might  arise  after  the  influence  of 
intoxicating  liquors  had  ceased  to  operate  directly,  and  the  subse- 
quent effects  produced  thereby  in  consequence  of  the  previous  use 
thereof.  The  intention,  evidently,  was  to  limit  the  liability  of  the 
company  by  the  contract  with  the  assured,  and  not  to  incur  any 
responsibility  when  the  injury  occurred  while  the  assured  was 
directly  under  the  influence,  or  where  the  result  was  remotely  pro- 
duced by  intoxicating  drinks.  Accidental  policies  are  issued  princi- 
pally to  travelers  or  persons  exposed  to  unusual  peril  and  danger, 
and  the  risk  in  such  cases  being  extremely  hazardous  it  is  by  no 
means  unreasonable  that  the  insurer  should  require  that  the  assured 
should  be  under  no  exciting  influence  which  may  affect  his  self-pos- 
session or  judgment,  or  seriously  interfere  with  the  free,  full  and 
deliberate  exercise  of  his  faculties  in  protecting  himself  from  acci- 
dent or  harm.  It  follows  that  the  proposition  laid  down  by  the 
judge  was  erroneous;  and  he  also  erred  in  refusing  to  charge  as 
requested.     *     *     *  " 

'  "  I  assent  to  the  vieiv  that  has  been  put  forward  by  Mr.  Russell,  as  at  pres- 
ent advised,  that  "  death,  or  injury  happening  while  the  assured  is  under  the 
infljence  of  intoxicating  liquor,"  must  in  reason  be  read  "  death,  or  injury 
causing  death,  happening  while  the  assured  is  under  the  influence  of  intoxicat- 
ing liquor."  The  consequence  would  be,  I  think,  preposterous  if  we  held  that, 
if  the  death  happened  while  he  was  under  the  influence  of  intoxicating  liquor 
the  company  would  not  be  liable,  whereas  if  the  injury  which  caused  the  death 
happened  under  the  same  circumstances,  but  the  man  happened  to  be  sober 
when  he  died,  under  those  circumstances  they  would  be  liable  under  the  pro- 
viso; and,  therefore,  I  think  the  good  sense  of  the  thing  is  clearly  with  the  con- 
struction which  was  put  forwird  on  the  company's  behalf.  I  say  it  is  not 
necessary  to  go  further  for  this  reaso.i,  that  upon   the  best  view  I  can  take  of 


TEKM5   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         299 

9.  Occupation. 

Black,  J.,  in  HARTMAN  v.  KEYSTONE  INSURANCE  CO. 
21  Pa.  466,  477.  —  1853. 

If  the  insured,  who  represented  himself  to  be  a  farmer,  was  in 
fact  a  slave-taker  by  occupation,  and  if  the  business  of  slave-taking 
would  expose  his  life  to  greater  danger  than  farming,  it  is  not  pos- 
sible to  escape  the  conclusion  that  the  policy  was  thereby  rendered 
void,  since,  if  it  was  wilfully  made,  it  was  a  fraud;  and  though  made 
ignorantly,  or  by  mistake,  it  was  a  warranty  by  the  express  terms 
of  the  policy.  The  plaintiff  can  only  recover  if  the  declaration  of 
the  assured,  upon  the  faith  of  which  the  risk  was  taken,  was  strictly 
true  in  every  material  part.  It  will  not  do  to  say  that  this  was 
immaterial.  Every  fact  is  material  which  increases  the  risk,  or 
which,  if  disclosed,  would  have  been  a  fair  reason  for  demanding 
a  higher  premium.  Nor  is  it  of  any  consequence  that  the  death  was 
not,  in  fact,  produced  by  a  cause  connected  with  the  subject  of  the 
tnisrepresentdtion.  One  who  falsely  declares  himself  free  from  con- 
sumption canot  effect  a  valid  insurance  on  his  own  life,  though  he 
die  of  cholera.  A  soldier  or  a  sailor  who  warrants  himself  a  mer- 
chant, has  a  void  policy,  even  though  he  is  not  slain  in  battle  or 
does  not  perish  at  sea.  In  such  cases  the  whole  contract  is  entirely 
void,  as  much  as  if  it  had  never  been  made,  and  of  course  it  cannot 
derive  any  force  or  validity  from  a  subsequent  event.' 

the  evidence  that  has  been  largely  discussed  before  me,  assuming  against  the 
company  that  the  true  construction  of  these  words  is  that  the  intoxicating 
liquor  must  conduce  to  the  accident,  even  in  that  view,  which  is  the  strongest 
view  that  can  be  taken  against  the  company,  I  think  that  the  great  weight  of 
the  evidence  is  that  in  this  case  the  man's  state  did  conduce  to  the  accident, 
and  did  contribute  to  the  result  which  happened.  Speaking  merely  for  myself 
I  should  not  construe  the  proviso  so  strongly  in  favor  of  the  company.  I  should 
think,  speaking  only  for  myself,  that  the  words  "  under  the  influence  of  intoxi- 
cating liquor  "  would  be  sufficiently  satisfied  by  construing  them  to  mean  under 
such  influence  of  intoxicating  liquor  as  disturbs  the  balance  of  a  man's  mind. 
There  is  a  point  up  to  which  any  stimulating  liquor,  with  most  people  at  least, 
possibly  benefits,  at  any  rate  for  the  time,  the  exercise  of  the  intellect.  There 
is  a  point  beyond  which  it  certainly  impedes  —  disturbs  it.  1  concede  that  it  is 
very  difficult  even  in  language  —  certainly  in  the  English  language  —  to  ascer- 
tain with  precision  where  that  point  is;  but  it  is  enough  to  say  that  there  is  a 
point,  and  it  seems  to  me  these  words  would  be  satisfied  when  the  influence  of 
intoxicating  liquor  is  found  in  point  of  fact  to  be  such  as  to  disturb  the  quiet 
and  equable  exercise  of  the  intellectual  faculties  of  the  man  who  has  taken  the 
liquor." — Lord  Coleridge,  C.  J.,  in  Mair  v.  Co.,  37  L.  T.  N.  S.  356,  357  (C.  P. 
Div.) 

'  "'If  a  man,  for  want  of  employment,  steps  aside  for  a  season  from  his  regular 
and  usual  calling,  he  does  not  lose  his  connection  with  or  give  up  his  craft,  as 


300  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

Beasley,  C.   J..   IN  STONE'S   ADMINISTRATORS  v.  UNITED 
STATES   CASUALTY  CO. 

34  N.  J.  L.  371.  — 1S71. 

The  second  objection,  arising  out  of  the  clause  of  the  policy  above 
recited,  was,  that  there  was  error  in  the  charge  of  the  judge  touch- 
ing that  provision  which  prohibited  a  change  of  occupation  on  tlie 
part  of  the  assured,  without  notice.  In  this  policy  the  deceased 
was  described  as  a  teacher,  and  it  was  insisted  that  he  had  given  up 
that  occupation  and  had  become  a  builder,  which  was,  according  to 
the  specifications  of  the  policy,  a  business  attended  with  greater 
hazard.  That  Mr.  Stone  had  been  a  teacher  by  profession  was  not 
denied,  and  the  entire  proof  of  his  change  of  occupation  since  he 
had  been  insured  consisted  in  the  fact  that  he  had  caused,  apparently 
for  his  own  use,  two  dwelling-houses  to  be  erected.  There  seems  to 
be  no  substance  whatever  in  this  objection.  The  court  would  have 
been  fully  warranted  in  saying  that  there  was  no  evidence  whatever 
from  which  the  assumption  by  the  assured  of  any  new  business  could 
be  inferred.  But  the  point  was  left  to  the  jury,  with  the  explanation 
that  the  expression  "  changing  occupation,"  etc.,  meant  an  engag- 
ing in  another  employment  as  a  usual  business.  It  seems  to  require 
no  argument  to  show  that  this  exposition  was  correct.  It  is  simply 
the  clear,  literal  meaning  of  the  terms,  which  can,  in  this  connec- 
tion, have  no  other  signification.  Mr.  Stone  was  a  teacher  out  of 
employment,  and  it  seems  preposterous  to  affirm  that  because  he 
had  one  or  two  houses  built  by  contract,  that  he  thereby  became 
a  builder  by  profession.  Persons  of  wealth  often  invest  their  money 
in  buildings,  but  it  would  be  a  palpable  error  to  classify  them,  with 
respect  to  occupation,  among  builders.  The  instructions  of  the 
judge  and  the  findings  of  the  jury  on  this  head  were  clearly  correct.' 


in  this  case  he  did  not  cease  to  be  a  maker  of  soda  water  because  for  the  lime 
being  he  sold  it  in  the  streets.  Neither  is  inconsistent  with  the  other,  but  both 
are  functions  of  the  same  calling.''  —  Grattan  v.  Ins.  Co.,  80  N.  Y.  281,  291. 
See  also  Dwightv.  Ins.  Co.,  103  N.  Y.  341. 

'  In  North  Amer.  Ins.  Co.  \.  Burroitohs,  69  Pa.  43,  the  assured  had  stated  in 
his  application  that  his  occupation  was  "  earthenware  manufacturer."  While 
visiting  a  farm  he  was  mortally  injured  by  an  accident  while  loading  hay.  It 
was  held  that  this  was  not  a  change  of  occupation,  within  the  meaning  of  the 
policy.  In  Johnson  v.  Co.,  115  Mich.  86,  one  who  represented  himself  in  the 
application  as  secretary  and  treasurer  of  a  grocery  firm  was  held  not  necessarily 
to  have  changed  his  occupation  to  farming,  by  returning  to  his  farm,  which 
was  managed  by  his  agent,  when  the  firm  by  which  he  was  employed  went  out 
of  business.  In  Union  Mul.  Co.  v.  P'rohard.  134  111.  22S,  the  assured  whose-occu- 
palion  was  that  of  merchant  was  accidentally  killed  while  hunting,  for  recrea- 


TERMS   OF    THE   ACCIDENT   INSURANCE   CONTRACT.         30I 

Military  or  Naval  Service.  —  In  JVe/is  v.  Ins.  Co.,  48  N.  Y.  34, 
the  life  policy  provided  for  forfeiture  of  the  policy  if  the  assured 
entered  'into  any  military  or  naval  service  whatever."  Assured 
was  killed  while  in  the  employ,  during  the  Civil  War,  of  the  United 
States  Government,  while  he  was  superintendent  of  bridge  construc- 
tion upon  a  railroad,  under  the  direction  of,  and  in  use  by,  the  fed- 
eral military  authorities.  The  court  said:  "  Entering  the  military 
service,  within  the  meaning  of  the  policy,  must  be  taken  in  its  strict 
or  limited  sense,  as  most  advantageous  to  the  assured,  as  well  as 
all  other  provisions  therein.  The  company  frame  the  policy  and 
choose  the  language.  If  there  is  anything  uncertain  it  is  the  right 
of  the  assured  to  enjoy  the  most  favorable  rule  of  construction. 
The  general  understanding  of  the  term  includes  such  persons  only 
as  are  liable  to  do  duty  in  the  field  as  combatants." 


10.  Violation  of  Law. 

MURRAY  V.  NEW  YORK  LIFE  INSURANCE  CO. 

96  N.  Y.  614. —  1884. 

Appeal  from  judgment  of  the  General  Term  of  the  Supreme 
Court,  in  the  second  judicial  department,  entered  upon  an  order 
made  September  11,  1883,  which  affirmed  a  judgment  in  favor  of 
defendant,  entered  upon  a  verdict  and  afifirmed  an  order  and  deny- 
ing a  motion  for  a  new  trial  This  action  was  brought  upon  two 
policies  of  insurance  issued  by  defendant  upon  the  life  of  Wisner 
Murray. 

Andrews,  J.  — The  policies  upon  the  life  of  Wisner  Murray,  each 
contain  a  condition  that  if  the  assured  "  shall  die  in,  or  in  conse- 
quence of  a  duel,  or  of  the  violation  of  the  laws  of  any  nation,  State, 
or  province,"  the  policy  shall  be  void.  The  assured  died  from  a 
pistol  shot  from  a  pistol  in  the  hands  of  one  Berdell,  upon  whom 
the  deceased  and  his  brother  had  committed  a  violent  assault,  and 
the  defense  is  based  upon  this  condition   in   the   policy.     It  is  an 

tion,  and  it  was  contended  by  defendant  that  the  insured  had,  in  contravention 
of  the  by-laws  of  the  company,  met  his  death  while  engaged  in  an  "  occupation 
more  hazardous  than  the  one  in  which  he  was  engaged  when  insured."  The 
court  held  "  occupation  "  as  found  in  the  by-laws  "  to  have  reference  to  the 
vocation,  profession,  trade  or  calling  which  the  assured  is  engaged  in  for  hire 
or  for  profit,  and  not  as  precluding  him  from  the  performance  of  acts  and  duties 
which  are  simply  incidents  connected  with  the  daily  life  of  man  in  any  or  all 
occupations,  or  from  engaging  in  mere  acts  of  exercise,  diversion  or  recreation.'-' 


302  THE   TKR.MS   OF   THE    INSURANCE    CONTRACT. 

undisputed  fart  that  the  brothers,  acting  in  concert,  planned  the 
assault  upon  Berdell.  They  stationed  themselves  in  the  waiting- 
room  of  the  station  awaiting  his  arrival,  and  when  he  entered  the 
rojm,  Spencer  Murray  seized  him  by  the  arms  from  behind  and  held 
him,  while  his  brother  Wisner  Murray,  standing  in  front,  beat  him 
over  the  head  and  face  with  a  raw-hide,  striking  from  ten  to  twenty 
blows,  inflicting  severe  and  painful  wounds  from  which  the  blood 
flowed  profusely,  covering  his  face  and  clothing.  The  assault  was 
a  brutal  one,  and,  so  far  as  appears,  without  provocation.  Berdell 
testified  that  in  the  struggle  to  escape  from  Spencer  Murray,  his 
hand  was  involuntarily  brought  into  contact  with  his  hip  pocket 
containing  a  pistol.  Hi  drew  it  from  his  pocket,  and  it  appears 
that  Wisner  Murray,  seeing  the  pistol,  started  toward  the  lunch 
counter,  keeping  his  face  toward  Berdell  and  calling  on  his  brother 
to  "  hold  him  and  not  to  let  him  shoot."  Wisner  Murray  jumped 
over  the  lunch  counter,  and  as  he  was  passing  through  a  door  into 
another  room,  the  pistol  in  the  hands  of  Berdell  was  discharged,  the 
ball  hitting  the  assured  in  the  forehead,  causing  his  death. 

Berdell,  who  was  called  as  a  witness  by  the  defendant,  testified, 
in  substance,  that  the  firing  of  the  pistol  was  accidental,  and  was 
caused  by  the  sudden  jerking  of  his  arm  by  Spencer  Murray,  who 
was  still  holding  him,  and  that  he  had  no  intention  of  firing  at  the 
deceased.  It  is  established  by  the  great  preponderance  of  testimony, 
that  until  after  the  pistol  was  fired,  Berdell  was  in  the  grasp  of 
Spencer  Murray,  and  was  struggling  to  release  himself.  Berdell 
also  testified  that  the  deceased,  during  the  time  he  was  retreating, 
had  a  pistol,  which  he  pointed  at  the  witness  as  if  aiming  at  him. 
He  is  confirmed  as  to  the  deceased  having  a  pistol  by  another  wit- 
ness, and  a  pistol  was  found  after  the  affray  on  the  floor  near  where 
the  deceased  fell,  a  distance  of  about  thirty  feet  from  the  place 
where  Berdell  was  when  the  shot  was  fired.  The  witnesses  differ  as 
to  the  time  which  elapsed  between  the  commencement  of  the  affray 
and  the  firing  of  the  pistol,  the  highest  estimate  given  by  any  wit- 
ness being  thirty  seconds. 

It  is  not  disputed  that  the  assault  made  upon  Berdell  was  a  viola- 
tion of  law.  But  it  is  contended  that  as,  according  to  the  evidence 
of  Berdell,  the  firing  was  accidental  and  not  intentional,  and  as  it 
also  appears  that  it  happened  after  the  assured  had  abandoned  the 
combat,  his  death  was  not  "  in,  or  in  consequence  of,  a  violation  of 
law,"  and  was  not,  therefore,  a  death  excepted  from  the  operation 
of  the  policy.  The  argument  is  that  death  under  such  circum- 
stances, from  an  accidental  shooting,  cannot,  in  a  legal  sense,  be 
attributed  to  the  violation  of  law,  which  preceded  it,  so  as  to  bring 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         303 

it  within  the  condition  of  the  policy.  There  must,  no  doubt,  be  a 
relation  between  the  act  causing  the  death  and  the  violation  of  law 
to  avoid  the  policy.  In  the  case  of  Bradley  v.  Mutual  Ben.  L.  Ins. 
Co.,  45  N.  Y.  422,  involving  the  construction  of  a  similar  clause  in 
a  life  policy,  the  court  said:  "  It  seems  to  be  clear  that  a  relation 
must  exist  between  the  violation  of  law  and  the  death  to  make  good 
the  defense;  that  the  death  must  have  been  caused  by  the  violation 
of  law." 

It  may  be  that  the  proviso  in  the  policy  was  primarily  intended  to 
exempt  the  company  from  the  hazard  of  a  death  from  violence  to 
whicii  persons  engaged  in  the  execution  of  criminal  acts  are 
exposed,  and  especially  where  the  unlawful  or  criminal  act  is  such  as 
is  likely  to  be  met  by  forcible  resistance.  It  is  plain  that  homicide 
committed  in  self-defense  would  be  a  death  within  the  condition;  so, 
also,  a  death  at  the  hands  of  justice  in  punishment  for  crime.  The 
death  in  these  cases  would  be  the  direct  and  legitimate  result 
of  the  criminal  act.  Another  case,  a  little  further  removed  from  the 
violation  of  law  as  its  cause,  would  be  one  where  a  party  assailed,  in 
the  heat  of  passion,  engendered  by  the  act  of  the  assured,  on  the 
moment  takes  the  life  of  the  aggressor,  although  the  provocation 
might  not  be  a  legal  justification  of  the  homicide.  Such  a  death  we 
conceive  might  be  within  the  condition,  depending  upon  circum- 
stances. If  the  violation  of  law  in  which  the  deceased  was  engaged 
was  trivial,  although  calculated  to  some  extent  to  excite  opposition 
or  resistance,  but  the  taking  of  life  was  a  result  which  no  reasonable 
man  could  have  contemplated  as  likely  to  follow  from  the  unlawful 
act,  there  would  be  no  such  relation  between  the  act  and  the  death 
that  the  former  could  be  said  to  be  the  cause  of  the  latter.  But  if,  on 
the  other  hand,  the  party  killed  was  engaged  in  committing  a  violent 
assault,  the  natural  result  of  which  would  be  to  arouse  the  passions 
and  excite  the  anger  of  the  party  assailed,  and  in  the  heat  of  passion 
he  killed  his  assailant,  the  death  would,  we  think,  be  the  result  of 
the  unlawful  act  withm  the  meaning  of  the  policy,  although  the  party 
causing  it  exceeded  the  bounds  of  lawful  resistance.  As  between 
the  company  and  the  assured,  his  violation  of  law  ought  justly  to  be 
treated  as  the  cause  of  the  death,  because  the  deceased  must 
be  assumed  to  have  known  the  danger  he  incurred,  and  that  a 
party  resisting  an  assault  under  such  circumstances,  and  whose 
anger  is  naturally  excited,  does  not  mark  with  exactness  the  line 
which  separates  lawful  defense  from  excessive  and  unjustifiable 
force. 

We  have,  so  far,  had  in  view  cases  where  the  death  of  a  person 
insured  was  the  result  of  the  intentional  act  of  another,  or  of  the 


304  THE    TERMS   OF   THE   INSURANCE    CONTRACT. 

law.  But  while  it  is  probable,  as  we  have  said,  that  cases  of  this 
kind  were  primarily  in  the  contemplation  of  the  parties  to  the  con- 
tract, the  words  of  the  condition  are  too  broad  to  permit  them  to  be 
confined  to  this  narrow  and  rigid  limitation.  The  proviso  clearly 
exempts  the  company  from  all  risks  of  life  which  attend  the  vio- 
lation of  law,  which  are  the  natural  and  reasonable  concomitants 
of  thj  transaction.  Prize  fighting  is  prohibited  by  law,  and  is 
attended  with  some  danger.  Suppose  in  such  a  friendly  contest,  by 
mishap  one  of  the  combatants  strikes  a  blow  which  causes  the  death 
of  the  other.  Would  a  death  under  such  circumstances  be  a  death 
in  the  violation  of  law  within  the  policy,  although  there  was  no  inten- 
tion to  kill?  However  this  might  be  answered,  we  think  it  is  clear 
that  there  may  be  a  death  in  violation  of  law  within  the  meaning  of 
the  policy,  although  not  intentionally  inflicted,  and  although  it  was  not 
occasioned  by  the  act  of  another.  A  burglar,  who  in  consequence 
of  a  misstep,  or  to  escape  detection,  falls  or  jumps  from  the  roof  of 
a  house  which  he  is  attempting  to  enter,  and  is  killed,  dies  in  viola- 
tion of  law  as  plainly  as  if  he  had  been  shot  by  the  owner  in  defense 
of  his  dwelling.  In  the  former  as  in  the  latter  case,  the  death 
results  from  the  criminal  act,  within  the  policy,  as  a  natural  and 
reasonable  consequence,  because,  although  the  immediate  cause  of 
the  death  was  the  fall,  yet  the  exposure  to  the  danger  was  encoun- 
tered in  the  prosecution  of  the  criminal  purpose.  Another  case  may 
be  stated,  of  which  there  may  perhaps  be  more  doubt.  Suppose  the 
assured  in  this  case  instead  of  having  been  killed  by  the  pistol  had, 
in  the  struggle  with  Berdell,  ruptured  a  blood  vessel,  or,  being  pre- 
disposed to  heart  disease,  it  had  been  brought  on  by  the  excitement 
of  the  affray,  and  he  had  died  from  either  of  these  causes  in  the 
midst  of  the  struggle.  Death  from  a  rupture  of  a  blood  vessel, 
or  from  disease  of  the  heart,  occurring  independently  of  any 
violation  of  law,  would  be  covered  by  the  policy.  The  company 
assumes  the  risks  of  death  from  these  causes  under  ordinary  circum- 
stance. But  do  they  assume  such  risk  when  the  immediate,  excit- 
ing cause  of  the  death  is  the  struggle  originating  in  a  criminal 
assault  in  which  the  deceased  was  engaged  at  the  time?  To  exempt 
the  company,  must  the  death  result  from  some  peculiar  and  special 
risk  connected  with  the  commission  of  crime?  It  seems  to  us  not, 
and  that  it  is  sufificient  to  bring  a  case  within  the  condition,  if  there 
is  such  a  relation  between  the  act  and  the  death  that  the  latter 
would  not  have  occurred  at  the  time  if  the  deceased  had  not  been 
engaged  in  the  violation  of  law. 

In  the  case  before  us  it  is  said  that  the  shooting  was  accidental, 
and  not  voluntary  or  intentional,  and  consequently  was  not  a  death 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT.         305 

in  or  in  consequence  of  a  violation  of  law.  What  incidents  would 
attend  the  assault  by  the  Murrays  could  not  be  foreseen.  They 
probably  did  not  know  that  Berdell  had  a  pistol,  and  if  they  had 
known  it,  they  could  not  have  anticipated  that  it  would  be  discharged 
in  the  manner  stated  by  him.  But  they  took  the  risk  of  his  resist- 
ance to  any  extremity.  They  took  the  risk  of  any  injury  which 
might  happen  to  them  in  consequence  of  his  handling  a  deadly 
weapon,  whether  such  injury  was  intentional  or  accidental.  The 
case  is  to  be  considered  under  the  actually  existing  circumstances  of 
the  assailants  and  assailed,  and  if  the  killing  under  these  circum- 
stances was  not  an  unnatural  result  of  the  attack,  the  case  is  within 
the  condition.  Assuming  that  Berdell's  statement  that  the  shooting 
was  unintentional  was  binding  on  the  jury,  and  that  the  killing  was 
accidental,  yet  the  accident  was  the  result  of  the  struggle  of  Berdell 
to  free  himself  from  the  grasp  of  Spencer  Murray,  and  the  jerking 
of  his  arm  by  the  latter.  The  accident,  so  called,  was  caused  by  the 
assault,  and  the  risk  of  injury  from  the  discharge  of  the  pistol 
was  occasioned  by  the  criminal  act  of  the  Murrays.  The  claim 
that  Wisner  Murray  had  abandoned  the  combat  before  the  firing  of 
the  pistol,  if  true,  does  not  meet  the  difficulty.  He  was  a  party  to 
the  original  encounter.  The  struggle  with  Spencer  Murray  was  con- 
tinuing when  the  pistol  was  fired.  If  the  shot  had  killed  Spencer 
Murray,  and  he  had  been  the  person  msured,  there  could,  we  think, 
be  no  doubt.  It  killed  his  brother  who  was  unfortunately  within 
its  range,  but  at  a  time  when  it  was  said  he  was  attempting  to  escape 
from  the  scene.  But  he  was  not  relieved  from  responsibility  for  the 
act  of  his  confederate  in  a  crime  jointly  planned,  who  was  continu- 
ing the  assault,  and  the  act  of  Spencer  Murray  in  jerking  the  arm 
of  Berdell,  causing  the  explosion,  is  as  to  the  company  the  act  of 
both. 

We  are  of  opinion,  assuming  as  true  to  its  full  extent  the  state- 
ment made  by  Berdell,  that  the  defense  was  established.  If,  as  there 
is  some  slight  evidence  to  show,  Berdell  fired  the  pistol  after  he  had 
escaped  from  Spencer  Murray,  the  case  is  not  changed.  At  all  events 
the  jury  upon  that  theory  of  the  case  might  well  have  found,  and  could 
not  justly  have  found  otherwise,  that  it  was  fired  by  Berdell  in  the 
heat  of  passion,  and  under  circumstances  which,  if  they  did  not  fully 
justify  him,  made  the  firing  and  the  consequent  death  a  natural 
and  reasonable  consequence  of  the  assault.  Whether,  therefore,  the 
firing  of  the  pistol  was  intentional  or  not,  or  whether  Wisner  Murray 
had  or  had  not  abandoned  the  combat,  the  jury  upon  the  evidence 
were  justified  in  findmg,  as  they  did  by  the  general  verdict,  that 
the  assured   died   in,  or  in  consequence  of,  a  violation  of  law.     This 

LAW  OF  INSURANCE  —  20 


305  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

conclusion  answers  tlie  points  made   upon  the    exceptions    to    the 
charge.      *     *     * 

We  think  the  judgment  should  be  affirmed 

All  concur,  except  Danforth,  J.,  absent. 

Judgment  affirmed.' 

'  In  Goetzman  v.  Co.,  3  Hun,  515,  the  proof  in  the  case  tended  to  show  that 
just  after  having  committed  adultery  with  Mr5.  Hesler,  the  assured  was  shot 
and  killed  by  her  husband.  The  court  said:  "  The  condition  of  the  policy  is, 
that  '  if  the  assured  shall  die  by  suicide,  or  in  consequence  of  his  violation  of 
any  law,'  the  policy  shall  be  void.  Assuming  that  the  act  of  adultery  was  a 
violation  of  law,  within  the  meaning  of  the  parties  to  the  contract  of  insurance, 
we  are  of  opinion  ihat  the  assured  did  not  die  in  consequence  of  it.  The  undis- 
puted facts  show  that  he  was  killed,  not  in  the  act  of  adultery,  nor  in  defense 
of  person  or  property.  The  offense  had  been  completed,  and  the  assured  was 
about  to  go  away.  He  was  not,  therefore,  at  the  time  he  was  killed,  violating 
any  law,  or  even  commiiiing  a  trespass,  for  he  was  in  the  house  by  the  license 
of  the  wife,  from  whom  the  husband  had  separated."  In  Griffin  v.  Assoc,  20 
Neb.  620,  assured  had  wrongfully  obtained  money  from  the  state  treasury. 
The  attempt  having  been  expected  a  policeman  was  stationed  to  intercept 
him  when  escaping  and  assurei  refusing  to  slop  the  policeman  shot  him.  The 
court  said:  "  It  will  be  observed  that  the  condition  named  is,  '  if  a  member 
shall  die  luhile  violating  any  law,'  etc.  That  is,  in  the  actual  violation  of  a  law. 
Now  suppose  Giiffin  hid  robbed  the  state  treasury,  and  had  left  it.  and  was 
about  to  emerge  from  the  building  when  he  was  killed,  can  it  be  said  that  at 
the  time  of  his  death  he  was  violating  any  law  of  the  state?  We  think  not. 
Suppose  that  instead  of  robbing  the  treasury  he  had  made  an  assault  upon 
the  treasurer  in  his  office,  or  committed  a  battery  upon  him  and  had  left  ihe 
treasury  department  and  nearly  reached  the  outer  door  of  the  capitol  when  he 
was  killed,  it  will  not  be  contended  that  at  the  time  of  his  death  he  was  violat- 
ing the  law.  So  in  this  case  the  act  of  Griffin  in  obtaining  money  from  the 
treasury  had  been  completed  and  he  was  then  endeavoring  to  make  his  escape. 
Griffin  therefore  was  not  killed  while  violating  the  law,  and  there  is  no  forfeiture 
of  the  certificate  on  that  ground." 

In  Cornwell  X.  Assoc,  6  N.  D.  201,  where  the  insured  having  started  out  in 
the  prohibited  season  to  kill  prairie  chickens  accidentally  shot  himself  while 
scaling  a  bank,  it  was  held  that  the  insured  "  was  not  engaged  in  the  killing  of 
anything  at  the  time  the  accident  occuired  "  and  recovery  was  allowed.  But 
in  Duran  v,  Co.,  63  Vl.  437,  the  insured  slipped  and  injured  his  knee  while 
walking  home  from  hunt'ng  on  Sunday,  and  he  was  not  allowed  to  recover 
from  the  company.  Both  traveling  on  Sunday  and  hunting  on  Sunday  were 
prohibited  by  statute,  but  in  this  case  the  provision  of  the  policy  was  that  there 
should  be  no  recovery  if  the  violation  of  law  were  the  act,  cause,  or  condition  of 
the  injury  or  where  the  injury  "  was  effected  by  any  such  act,  cause  or 
condition." 

See  also  Greshani  v.  Co.,  87  Ga.  497  (assault  and  battery);  Bloom  v.  Co.,  97 
Ind.  478  (assault  and  battery). 

Suicide  as  a  Violation  of  Law. — "  The  provision  relied  upon  to  support  the 
defense   so  alleged,  is  the  provision   in   the  contract  thit  it  should  "  be  void  if 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         307 

Elliott,  C.  J.,  in  BLOOM  v.  FRANKLIN  LIFE  INS.  CO. 

97  Ind.  478,  481,  482.  —  1884. 

Granting  it  to  be  true,  as  decided  in  C/nff  v.  Mutual,  etc..  Insur- 
ance Co  ,  13  Allen,  308,  that  the  violation  of  law  must,  in  order  to 
avoid  the  policy,  be  a  breach  of  some  criminal  statute,  still  the 
answer  is   good,    for   courts  judicially   know    that   an   assault  and 

ihe  member  herein  shall  die  *  *  *  in  I'iolation  of  or  attempt  to  violate  any 
criminal  law  of  the  United  States,  or  of  any  state  or  country  in  which  the  mem- 
ber herein  named  may  be."  The  death  of  Darrow  was  in  this  state.  At  com- 
mon law  suicide  was  a  crime,  and  the  consequence  was  the  forfeiture  of  the 
chattels,  real  and  personal,  of  ihc  felo  de  se.  (4  Bl.  Com.  190.)  It  is  not  a  crime 
in  this  stale.  (Penal  Code,  §§  2,  173.)  The  attempt  to  commit  suicide  ib  made 
a  crime  by  the  statute.  *  *  *  (Id.,  §  178.)  While  the  attempt  to  commit 
suicide  is  a  crime,  the  accomplishment  of  the  purpose  to  do  so  is  not.  *  *  * 
It  must,  for  the  purpose  of  the  question  here,  be  assumed  that  Darrow  had  the 
purpose  of  taking  his  own  life,  and  that  he  fully  accomplished  such  purpose. 
The  result  of  his  act  influenced  by  such  intent,  then,  was  his  death.  By  the 
act  of  taking  his  own  life  he  violated  no  criminal  law,  unless  the  attempt  to  do 
it  may  be  distinguished  from  the  act  accomplished.  An  act  is  characterized  by 
the  purpose,  when  ascertained,  of  the  party  doing  it,  or  by  its  result.  If  the 
act  fails  to  accomplish  its  purpose,  it  constitutes  an  attempt,  bat  if  the  result  of 
it  is  the  consummation  of  the  purpose,  the  act  is  not  commonly  designated  as 
an  attempt."  —  Darroiv  v.  Sor.,  ri6  N.  Y.  537. 

"  We  now  come  to  consider  the  effect  of  the  clause  providing  that  death  '  in 
consequence  of,  or  in  violation  of  law  '  is  not  a  risk  covered  by  the  policy.  It 
is  truly  said  that  intentional  suicide  while  sane  was  a  felony  at  common  law. 
It  was  punished  by  forfeiture  of  goods,  but,  as  we  do  not  inflict  such  punish- 
ments, it  is  now  little  more  than  the  shadow  of  a  crime.  Technically,  it  is  still 
a  crime  in  this  state,  because  we  have  retained  the  common  law  so  far  as  it  is 
not  inconsistent  with  our  laws  and  general  situation,  but  it  is  not  a  crime  within 
the  ordinary  meaning  of  the  term,  or  any  usual  definition,  because  we  have  no 
statute  punishing  either  suicide  or  attempted  suicide."  — Patterson  v.  Co.,  100 
Wis.  118. 

Death  AT  THE  Hands  OF  Justice. — "  The  question  is  whether,  *  *  *  the 
party  effecting  the  insurance  having  committed  felony,  and  having  been  tried, 
convicted,  and  executed  for  felony  —  the  parties  representing  him,  and  claiming 
under  him  and  in  his  right,  can  maintain  the  suit.  *  *  *  Suppose  that  in 
the  policy  this  risk  had  been  insured  in  terms  —  that  in  the  event  of  the  party 
effecting  the  insurance  being  executed  for  a  capital  felony,  the  money  should 
become  payable  —  is  it  possible  that  a  claim  in  right  of  a  party  effecting  such 
an  insurance  could  be  maintained,  or  that  the  insurance  should  not  be  held  void 
as  affording  encouragement  to  crime,  and  being  contrary  to  public  policy?  If 
such  a  policy  could  not  be  sustained  where  a  risk  of  that  kind  was  mentioned 
in  direct  terms  and  language,  how  can  you  give  effect  to  a  policy  if  it  in  reality 
involves  that  condition?  On  this  short  and  plain  ground,  we  are  of  opinion 
that  the  claim  cannot  be  sustained."  —  Amicable  Sac.  v.  Bollatid,  2  Dow.  «& 
Clark,  I. 


308  THE    TERMS   OK   THE    INSURANCE    CUMRACl. 

battery  is  an  offense  punishable  as  a  crime.  *  *  *  'p^g  sound- 
ness of  the  decision  in  Cluff  \.  Mutual,  f/c,  Ins.  Co.,  supra,  upon  the 
point  immediately  under  discussion,  is  questioned  in  the  well-con- 
sidered case  of  Brai/lcy  v.  Mutual,  etc.,  Ins.  Co.,  45  N.  V.  422,  and 
was  denied  in  the  same  case  by  the  Supreme  Court  of  New  York. 
It  does  seem  a  wide  stretch  of  judicial  power  to  affirm  that  a  clause 
reading,  "  Or  in  case  he  shall  die  by  his  own  hand,  or  in  consequence 
of  a  duel,  or  by  reason  of  intemperance  from  the  use  of  intoxicating 
liquors,  or  by  the  hands  of  justice,  or  in  the  known  violation  of  any 
law  of  these  States,  or  of  the  United  States,  or  of  the  said  provinces, 
or  of  any  other  country  which  he  may  be  permitted  under  this  policy 
to  visit  or  reside  in,  this  policy  shall  be  void,"  refers  solely  to 
criminal  laws.  If  the  words  employed  are  taken  in  their  usual  sig- 
nification, it  would  seem  quite  clear  that  death  in  the  known  viola- 
tion of  any  law,  criminal  or  civil,  would  make  the  policy  inoperative. 
An  illustration  was  put  by  Grover,  J.,  in  Bradley  v.  Mutual  Ins.  Co., 
supra,  which  goes  far  to  show  the  unsoundness  of  the  decision  in 
Cluff  \.  Mutual,  etc.,  Ins.  Co.,  supra  :  "Again,  suppose  the  death 
occurred  from  injury  received  while  the  assured  w^as  attempting  to 
obtain  by  force  the  possession  of  a  chattel  of  which  another  was  in 
peaceable  possession,  the  title  to  which  was  claimed  by  both,  but 
which  was  really  in  the  assured,  the  case  would  come  within  the 
proviso,  for  the  reason  that  the  risk  was  increased,  and  the  death 
caused  by  the  violation  of  law  by  the  assured,  although  such  law 
was  the  civil  only,  the  deceased  having  committed  no  breach  of  the 
peace  or  any  indictable  offense."  Suppose,  as  a  further  illustration, 
that  the  law  prohibits  a  passenger  from  standing  on  the  platform  of 
a  railway  car  while  in  motion,  or  that  it  prohibits  persons  from 
approaching  within  a  specified  distance  of  a  blast  about  to  be  fired, 
would  not  a  known  violation  of  such  a  law  increase  the  risk,  and  be 
within  the  letter  and  the  spirit  of  the  provision  in  the  policy?  On 
the  other  hard,  it  is  not  every  violation  of  law  which  should 
absolve  the  company  even  though  the  law  be  a  criminal  one.  Sup- 
pose a  man  violates  our  law  against  profanity,  and  is  shot  while 
doing  it,  should  that  absolve  the  company  from  liability?  Again, 
suppose  a  man  violates  our  Sunday  law  by  fishing,  and  while  com- 
mitting the  offense  is  shot  and  killed,  would  that  relieve  the  com- 
pany? In  a  late  case.  Hatch  v.  Mutual  life  Ins.  Co.,  120  Mass.  550 
(21  Am.  R.  541),  a  rule  was  declared  which  it  seems  difficult,  if  not 
impossible,  to  reconcile  with  that  laid  down  in  Cluff  \.  Mutual,  etc., 
Co.,  supra,  for  it  was  held  in  the  later  case  that  where  an  assured 
submits  to  a  surgical  operation  for  the  purpose  of  producing  abortion 
there   can   be   no   recovery   upon   the   policy.      It   is   true   that   tlie 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         309 

opinion  puts  the  decision  upon  the  ground  of  public  policy,  but  when 
the  real  reason  for  the  decision  is  reached,  it  will  be  found  that  it 
rests  upon  the  ground  that  the  act  was  in  violation  of  the  rights  of 
the  insurance  company,  for  an  act  against  public  policy  cannot  relieve 
the  company  unless  it  is  one  increasing  the  risk.  If  a  man  should 
violate  public  policy  by  entering  into  an  illegal  conspiracy  to  pre- 
vent competition  at  a  public  sale,  and  this  should  lead  to  his  death, 
we  suppose  no  one  would  claim  that  because  his  act  was  against  pub- 
lic policy  the  insurance  contract  was  avoided.  Again,  if  an  assured 
should  enter  into  a  conspiracy  to  corruptly  control  the  acts  of  a  gov- 
ernment official,  or  should  enter  into  a  marriage  brokerage  contract, 
and  these  acts  should  lead  to  his  death,  it  would  be  clear  that  the 
policy  of  insurance  would  not  be  rendered  void.  In  our  opinion  the 
lavv  is  this:  A  known  violation  of  a  positive  law,  whether  the  law  is 
a  civil  or  a  criminal  one,  avoids  the  policy  if  the  natural  and  reason- 
able consequences  of  the  violation  are  to  increase  the  risk;  a  viola- 
tion of  law,  whether  the  law  is  a  civil  or  a  criminal  one,  does  not 
avoid  the  policy  if  the  natural  and  reasonable  consequence  of  the 
act  does  not  increase  the  risk.' 


'  "  The  first  step  in  the  inquiry  is  the  construction  of  this  proviso.  The  exact 
interpretation  to  be  given  to  the  words  '  in  case  he  shall  die  *  *  *  in  the 
known  violation  of  any  law  of  these  States,'  etc.,  has  been  the  subject  of  seri- 
ous debate.  In  another  action  upon  a  like  policy  of  the  same  company  on  the 
life  of  the  same  party,  which  was  tried  four  times  in  the  State  of  Massachu- 
setts, the  Supreme  Court  of  that  State,  in  a  carefully  considered  opinion,  held 
that  the  proviso  must  be  construed  to  refer  to  a  voluntary  criminal  act  on  the 
part  of  the  insured,  known  by  him  at  the  time  to  be  a  crime  against  the  lavv  of 
the  State,  and  not  to  mere  trespasses  against  property  or  infringements  of  civil 
laws  to  which  no  criminal  consequences  are  attached.  Cluff  y.  Mutual  Ben.  L. 
Ins.  Co.,  13  Allen.  308,  316,  317;  s.  c,  99  Mass.  318.  This  conclusion  is  based 
by  that  learned  court  upon  the  natural  import  of  the  words  '  known  violation 
of  law,'  and  upon  their  being  found  immediately  following  the  words  '  by  the 
hands  of  justice.'  A  similar  construction  was  adopted  by  the  Supreme  Court 
of  Missouri,  in  the  cases  of  Harper's  Administrators  v.  The  Phcsnix  Ins.  Co  ,  ig 
Mo.  500,  and  39  Mo.  122;  and  the  case  of  Breasted  v.  The  Farmers'  L.  &=  T.  Co. 
4  Seld.  299,  has  some  bearing  in  the  same  direction.  The  Supreme  Court  of 
this  State,  [3  Lans.  341],  whose  decision  is  now  under  review,  do  not  agree  to 
the  interpretation  given  to  the  proviso  by  the  courts  of  Massachusetts  and 
Missouri,  and  a  difference  of  opinion  exists  between  the  members  of  this  court 
as  to  whether  the  proviso  applies  only  to  violations  of  the  criminal  law,  or 
whether  it  embraces  all  illegal  acts  of  such  a  character  as  to  lead  to  violence." 
—  Bradley  \.  Co..  45  N.  Y.  422,427.  "A  contract  to  insure  a  woman  against 
the  risk  of  her  dying  under  or  in  consequence  of  an  illegal  operation  for  abor- 
tion would  be  contrary  to  public  policy  and  could  not  be  enforced  in  the  courts 
of  this  commonwealth."  — Hatch  v,  Co.,  120  Mass.  550. 


3IO  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

II.   Total  Disaijiiitv. 
SAVELAND  v.  FIDELITY   AND  CASUALTY  CO. 
67  Wis.  174.  — 1886. 

Plaintiff,  by  occupation  a  merchant  grocer  in  Milwaukee,  in 
consideration  of  $15  by  him  paid,  procured  of  the  defendant  a  policy 
of  insurance,  wherein  the  defendant,  among  other  things,  agreed  in 
effect  that  "if  the  insured  shall  sustain  bodily  injuries,  *  *  * 
effected  through  external,  violent,  and  accidental  means,  which 
shall,  independently  of  all  other  causes,  immediately  and  7v holly  6.\%- 
able  and  prevent  him  from  the  prosecution  of  any  and  every  kind  of 
business  pertaining  to  his  occupation,  then,  on  satisfactory  proof 
of  such  injuries,  he  shall  be  indemnified  against  loss  of  time  thereby 
in  a  sum  not  exceeding  $15  per  week  for  such  period  of  continuous 
total  disability  as  shall  immediately  follow  the  accident  and  injuries 
aforesaid,  not  exceeding,  however,  twenty-six  consecutive  weeks 
from  the  time  of  the  happening  of  such  accident."  Plaintiff  was 
accidentally  hit  with  great  force  upon  his  instep  by  a  stick  of  wood 
thrown  by  some  party,  inflicting  an  outward  and  external  mark, 
breaking  through  the  flesh,  and  seriously  injuring  his  foot,  by  rea- 
son of  w^hich  he  "  was  wholly  disabled  "  and  "  unable  to  engage  in 
any  business  "  for  the  first  week  thereafter,  and  was,  during  that 
time,  "  confined  to  his  home  and  under  the  doctor's  charge;"  "  that 
afterwards,  by  means  of  great  exertion,  he  was  enabled  to  get  to  his 
buggy,  and  superintend  a  small  part  of  his  business,  but  was  almost 
wholly  disabled  for  the  whole  period  of  twenty-six  weeks."  The 
answer  alleged,  in  effect,  that  the  proofs  of  loss  from  the  accident, 
furnished  by  the  plaintiff,  stated  a  "  total  disability  therefrom  for 
four  days,  and  no  more."  Under  the  charge  of  the  court,  the  jury 
returned  a  verdict  "  for  the  plaintiff  in  the  sum  of  $135,  for  nine 
weeks,  at  $15  per  week."     Defendant  appeals. 

Cassoday,  J.  —  The  cause  was  submitted  to  the  jury  on  the  theory 
that  it  was  the  object  of  the  policy  to  insure  the  plamtiff  against 
accident,  and  to  pay  the  plaintiff  what  the  company  had  agreed  to 
pay  for  the  accident  he  had  received,  if  by  that  accident  he  had  been 
disabled  in  any  way  from  prosecuting  the  business  in  which  he  was 
engaged;  that  it  was  to  indemnify  the  plaintiff  "  for  his  want  of 
capacity  to  prosecute  the  business  in  which  he  was  engaged;"  that 
the  plaintiff  was  "  entitled  to  recover,  at  the  rate  agreed  on  in  the 
policy,  for  such  time  as  by  reason  of  such  accident  he  "  was  "  ren- 
dered wholly  unable  to  do  his  accustomed  labor;  that  is,  to  do  sub- 
stantially «// /^/V/(/y  of  his  accustomed  labor  to  some  extent."     The 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         31I 

learned  trial  judge  was  supported  in  such  theory  by  the  language  of 
the  court  in  Sawyer  v.  U.  S.  Casualty  Co.,  8  Am.  Law  Reg.  (N.  S.) 
233.  The  clause  of  the  policy  there  involved  was,  "  totally  disable 
him  from  the  prosecution  of  his  usual  employment."  The  case  was 
in  the  Superior  Court  of  Worcester,  Massachusetts,  but  never 
reached  the  Supreme  Court  of  that  State,  nor  do  vve  find  it  referred 
to  in  any  subsequent  case  in  any  court.  That  case  apparently  fol- 
lowed Hooper  v.  Accidental  D.  Ins.  Co.,  5  Hurl.  &  N.  546,  where 
the  clause  of  the  policy  relied  upon  was,  "  any  bodily  injury  to  the 
said  insured  of  so  serious  a  nature  as  wholly  to  disable  him  from 
following  his  usual  business,  occupation,  or  pursuits;"  and  it  was 
held,  in  effect,  that  a  disability  which  incapacitated  the  assured 
from  "  following  his  usual  occupation,  business  or  pursuits  "  was  a 
breach.  In  neither  of  those  cases  was  the  language  .of  the  policy 
so  broad  and  sweeping  as  in  the  case  at  bar.  The  language  of  this 
policy  is  even  more  sweeping  than  in  Rhodes  v.  Railway  Pass.  Ins. 
Co.,  5  Lans.  77,  where  it  was  held  that  there  could  be  no  recovery 
because  it  was  not  shown  that  there  was  a  "  total  disability  to  labor." 
In  that  case  the  language  of  the  policy  was,  "  accident  and  injury 
which  totally  disabled  and  prevented  from  all  kinds  of  business." 
Tiie  same  is  true  with  respect  to  lyon  v.  Railway  Pass.  Assur.  Co., 
46  Iowa,  631,  where  the  language  of  the  policy  was,  "  while  totally 
disabled  and  prevented  from  the  transaction  of  all  kinds  of  busi- 
ness;" and  it  was  held  that  such  language  could  not  be  construed 
to  mean  "  partially  disabled  from  some  kinds  of  business." 

Here  the  plaintiff  was  only  entitled  to  recover  in  case  the  injury 
was  such  as  to  "wholly  disable  and  prevent  him  from  the  prosecution 
of  a?iy  and  every  kind  of  business  pertaining  to  his  occupation,"  and 
then  only  "  for  such  period  of  continuous  total  disability,"  not 
exceeding  the  amount  stipulated,  nor  "  the  money  value  of  his  time 
during  the  period  of  continuous  total  disability,  not  exceeding 
twenty-six  weeks."  The  ordinary  object  of  a  policy  of  insurance 
may  be  such  as  stated  by  the  learned  trial  judge,  but  the  manifest 
purpose  of  this  policy  was  to  obtain  premiums  by  incurring  as  little 
risk  as  possible.  But  there  was  no  law  to  prevent  the  parties  from 
making  their  own  contract.  The  plaintiff  consented  to  and  made 
this  one.  He  cannot  repudiate  or  alter  its  conditions  in  the  day  of 
his  calamity.  The  courts  are  powerless  to  make  a  new  contract  for 
him  or  to  strike  some  words  from  the  contract  he  made  for  himself, 
and  insert  others,  and  thus  enlarge  the  risk,  in  order  to  meet  the 
expectation  of  the  plaintiff  in  obtaining  the  policy.  This  we  should 
be  compelled  to  do  in  order  to  sanction  the  charge  to  the  jury.  The 
plaintiff's  right  to  recover  is  necessarily  restricted  to  the  time   he 


312  THE    IHRMS   OF    rillC    INSURANCE    CONTRACT. 

was  w'nolly  disabled  and   prevented   "  from   the   prosecution  of  any 
and  every  kind  of  business  pertaining  to  his  occupation." 

By  the  Court.  —  The  judgment  of  the  County  Court  is  reversed, 
and  the  cause  is  remanded  for  a  new  trial. 


YOUNG  r.  TRAVELERS'  INSURANCE  CO. 

80  Me.  244.  —  1888. 

LiBBEY,  J.  —  The  plaintiff  seeks  to  recover  on  an  accident  insur- 
ance policy  issued  to  him  by  the  defendant  corporation.  The  main 
questions  involved  are:  i.  Whether  the  plaintiff  by  the  accident  to 
him  was  wholly  disabled  and  prevented  from  the  prosecution  of  any 
and  every  kind  of  business  pertaining  to  the  occupation  under  which 
he  was  insured.     *     *     * 

The  language  of  the  policy  upon  which  the  first  question  arises  is 
as  follows:  If  the  insured,  "  at  any  time  within  the  continuance  of 
this  policy,  shall  have  sustained  bodily  injuries,  effected  through 
external,  violent,  and  accidental  means,  within  the  intent  and  mean- 
ing of  this  contract  and  the  conditions  hereunto  annexed  and  such 
injuries  alone  shall  have  occasioned  death  within  ninety  days  from 
the  happening  thereof;  or,  if  the  insured  shall  sustain  bodily  injuries, 
by  means  as  aforesaid,  which  shall,  independently  of  all  other 
causes,  immediately  and  wholly  disable  and  prevent  him  from  the 
prosecution  of  any  and  every  kind  of  business  pertaining  to  the 
occupation  under  which  he  is  insured,  then,  on  satisfactory  proof  of 
such  injuries,  he  shall  be  indemnified  against  loss  of  time  thereby, 
in  a  sum  not  exceeding  twenty-five  dollars  per  week,  for  such  period 
of  continuous  total  disability  as  shall  immediately  follow  the  acci- 
dent and  injuries  as  aforesaid  not  exceeding,  however,  twenty-six 
consecutive  weeks  from  the  time  of  the  happening  of  such  accident." 

The  occupation  under  which  the  plaintiff  was  insured  was  that  of 
a  billiard  saloon  keeper.  The  contention  between  the  parties  is, 
whether  to  maintain  his  action  it  is  incumbent  upon  the  plaintiff  to 
prove  that  the  injuries  he  sustained  by  the  accident  wholly  disabled 
him  from  the  doing  of  any  and  every  kind  of  act  necessary  to  be 
done  in  the  prosecution  of  his  business,  or  it  is  sufificient  if  he  proves 
that  the  injury  received  from  the  accident  wholly  disabled  him  from 
the  doing  of  all  substantial  and  material  acts  necessary  to  be  done 
in  the  prosecution  of  his  business.  The  plaintiff  admitted  that  he 
could  do  some  acts  necessary  to  be  done  in  the  business  of  a  billiard 
saloon    keeper,   but  claimed   and  introduced   evidence    tending   to 


TERMS   OF   THE   ACCIDENT   INSURANCE   CONTRACT.         313 

prove  that  he  was  wholly  disabled  from  doing  many  of  the  material 
acts  necessary  to  be  done  in  that  business.  Upon  this  point  the 
presiding  justice  instructed  the  jury  as  follows:  "'  Now  the  reason- 
able construction  which  must  be  put  upon  the  language  here  used  is, 
that  it  must  have  meant  that  if  the  plaintiff  was  so  disabled  as  to 
be  incapable  of  doing  any  and  every  kind  of  business  pertaining  to 
his  occupation  as  a  billiard  saloon  keeper,  then  he  would  be  wholly  dis- 
abled from  the  prosecution  of  every  kind  of  business  pertaining 
to  such  occupation  and  entitled  to  the  stipulated  compensation. 
Otherwise,  if  he  was  not  so  disabled  he  would  not  be  entitled;  and 
therefore,  gentlemen,  I  instruct  you  as  matter  of  law  that  the 
meaning  of  the  language  here  used  is,  not  that  he  must  be  so  dis- 
abled as  to  prevent  him  from  doing  anything  whatsoever  pertaining 
to  his  occupation,  or  any  part  of  his  business  pertaining  to  his  occu- 
pation as  billiard  saloon  keeper;  but  that  he  must  be  so  disabled 
as  to  prevent  him  from  doing  any  and  every  kind  of  business  per- 
taining to  his  occupation.  There  may  be  a  difference  between  being 
able  to  perform  any  part  of  his  business^and  any  and  every  kind  of 
business  pertaining  to  his  occupation." 

We  think  that  there  is  no  error  in  this  instruction.  A  contract  of 
insurance  is  to  receive  a  reasonable  construction  so  as  to  effectuate 
the  purpose  for  which  it  was  m_ade.  In  cases  of  doubt  it  is  to  be 
liberally  construed  in  favor  of  the  insured  that  in  all  proper  cases  he 
may  receive  the  indemnity  contracted  for.  At  the  same  time  legal 
effect  should  be  given  to  all  the  language  used,  for  the  purpose  of 
guarding  the  company  against  fraud  and  imposture.  The  object  to 
be  accomplished  by  this  contract  was  indemnity  to  the  plaintiff  for 
loss  of  time  from  being  wholly  disabled  from  prosecuting  his  busi- 
ness by  an  injury  received  as  specified  in  the  policy.  He  was  not 
able  to  prosecute  his  business  unless  he  was  able  to  do  all  the  sub- 
stantial acts  necessary  to  be  done  in  its  prosecution.  If  the  prose- 
cution of  the  business  required  him  to  do  several  acts  and  perform 
several  kinds  of  labor,  and  he  was  able  to  do  and  perform  one  only, 
he  was  as  effectually  disabled  from  performing  his  business  as  if  he 
could  do  nothing  required  to  be  done,  and  while  remaining  in  that 
condition  he  would  suffer  loss  of  time  in  the  business  of  his  occupa- 
tion. Suppose  a  barber,  who  can  use  his  razor  and  shears  in  his 
right  hand  only,  but  can  use  his  left  to  wipe  his  customer's  face, 
comb  and  dress  his  hair  and  receive  pay  and  make  change,  by  an 
accident  is  wholly  deprived  of  the  use  of  his  right  hand  so  that  he 
can  neither  shave  his  customer  nor  cut  his  hair;  can  it  be  said  that 
he  is  not  wholly  disabled  from  the  prosecution  of  his  business  as  a 
barber?     An  accident  policy  which  would  not  afford  indemnity  in 


314  THE   TERMS   OF   THE    INSURAXCE   CONTRACT. 

such  a  case  would  be  a  delusion  and  a  snare.  This  construction  is 
sustained  by  May  on  Insurance,  §  522.  Hooper  v.  Accidental  Death 
Ins.  Co.,   5  H.  &  N.  545.      Affirmed  in  Exch.  Ch.  6  H.  &  N.  839. 

We  think  the  presiding  justice  might  have  gone  farther  in  the 
construction  of  this  clause  t)f  the  policy,  and  mstructed  the  jury 
that  to  entitle  the  plaintiff  to  recover  he  was  not  required  to  prove 
that  his  injury  disabled  him  to  such  an  extent  that  he  had  no 
physical  ability  to  do  what  was  necessary  to  be  done  in  the  prosecu- 
tion of  his  business,  bur  that  it  was  sufficient  if  he  satisfied  them 
that  his  injury  was  of  such  a  character  and  to  such  an  extent  that 
common  care  and  prudence  required  him  to  desist  from  his  labors 
and  rest  so  long  as  it  was  reasonably  necessary  to  effectuate  a  speedy 
cure  —  so  that  a  competent  and  skillful  physician  called  to  treat  him 
would  direct  him  so  to  do.  It  is  the  duty  of  the  insured  towards 
the  insurer  to  use  all  due  care  and  pursue  the  proper  course  to 
effect  a  cure  so  that  the  loss  of  time  for  which  he  is  to  receive 
indemnity  may  be  no  greater  than  is  reasonably  necessary.     *     *     *' 

Exceptions  and  motion  overruled. 

Peters,  C.  J.,  Walton,  Danforth.  Emery,  and  Haskell,  JJ., 
concurred. 


12.  When  Liability  Fixed. 

COOPER  V.  UNITED  STATES  MUT.  BENEFIT  ASSOC. 
132  N.  Y.  334.  —  1892. 

Haight,  J.  — This  action  was  brought  upon  a  certificate  of  insur- 
ance, issued  by  the  defendant,  to  recover  five  thousand  dollars. 
The  defendant,  by  its  certificate,  undertook  to  insure  Theodore  H. 
Cooper  against  personni  bodily  injury,  and  in  case  he  should  receive 
such  injuries  disabling  him  from  transacting  busi;iess  pertaining  to 
his  occupation  to  pay  him  certain  amounts  specifically  named  in  the 
certificate,  dependent  upon  the  nature  of  his  injuries,  and  in  case 
death  should  result  from  such  injuries  within  ninety  days  to  pay  to 
the  plaintiff,  as  his  wife,  the  sum  of  five  thousand  dollars.  The 
certificate  contained  the  following:  "  No  suit  or  proceeding  at  law 
or  in  equity  shall  be  brought  *  *  :■=  to  recover  any  sum  under 
this  insurance  unless  the  same  is  commenced  within  one  year  from 
the  time  of  the  alleged  accidental  injury." 

Cooper  received  an  accidental  bodily  injury  on  December  10,  1887, 
which  resulted  in  his  death  on   January  2,  1888.     This  action  was 

'  See  also  Thayer  v.  Co.,  68  N.  H.  577. 


TERMS   OF   THE   ACCIDENT    INSURANCE    CONTRACT.         315 

commenced  on  December  29,  1S88,  more  than  one  year  after  the 
accident,  but  within  one  year  of  his  death.  It  is  claimed  that  the 
action  was  not  commenced  within  the  time  required  by  the  provision 
of  the  certificate  referred  to.  It  will  be  observed  that  provisions 
are  made  in  the  certificate  for  two  different  persons  who,  upon  the 
happenmg  of  the  events  specified,  may  have  a  right  of  action  against 
the  association.  One  provision  is  in  favor  of  Cooper,  who  may 
recover  during  his  lifetime  the  amounts  provided  for  his  disability 
resulting  from  the  accidental  injury  received.  The  other  is  to  his 
wife,  which  is  for  the  injuries  she  suffers  by  reason  of  his  death 
resulting  from  such  accident.  The  accident  received  by  Cooper  did 
not  injure  the  plaintiff  or  give  her  a  right  of  action  until  death 
ensued.  So  far  as  she  is  concerned  the  infliction  of  the  wound  is 
but  the  beginning,  and  the  death  is  the  completion  of  the  injury. 
Her  suit  must  be  "  commenced  within  one  year  from  the  time  of  the 
alleged  accidental  injury."  In  other  words,  within  one  year  from 
the  time  of  the  injury  to  her,  which  was  the  death  of  her  husband, 
as  the  result  of  the  accident.     *     *     *' 


13.   Burden  of   Proof. 

TRAVELLERS'  INSURANCE  CO.  v.  McCONKEY. 

127  U.  S.  661.  —  1888. 

Mr.  Justice  Harlan.  —  There  is  no  escape  from  the  conclusion 
that,  under  the  issue  presented  by  the  general  denial  in  the  answer, 
it  was  incumbent  upon  the  plaintiff  to  show,  from  all  the  evidence, 
that  the  death  of  the  insured  was  the  result,  not  only  of  external  and 
violent,  but  of  accidental  means.  The  policy  provides  that  the 
insurance  shall  not  extend  to  any  case  or  death  or  personal  injury, 
unless  the  claimant  under  the  policy  establishes,  by  direct  and 
positive  proof,  that  such  death  or  personal  injury  was  caused  by 
external  violence  ^r;/^  accidental  means.  Such  being  the  contract, 
the  court  must  give  effect  to  its  provisions  according  to  the  fair 
meaning  of  the  words  used,  leaning,  however  —  where  the  words  do 
not  clearly  indicate  the  intention  of  the  parties  —  to  that  interpre- 

'  In  Burkheiser  V.  Assoc,  61  Fed.  8r6,  the  certificate  provided  for  payment  for 
accidental  death,  if  the  death  occurred  within  ninety  days  from  the  time  of  the 
accident.  After  the  accident  and  before  death  the  insured  ceased  to  be  a  mem- 
ber of  the  association  by  reason  of  failure  to  pay  an  assessment  falling  due  after 
the  accident.  Plaintiff  was  allowed  to  recover,  since  defendant's  liability 
became  fixed  at  the  time  of  the  accident. 


3l6  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

ration  wiiich  is  most  favorable  to  the  insured,  yaiional  Bank  \. 
//IS.  Co.,  95  U.  S.  673;  Western  Ins.  Co.  v.  Cropper.,  32  I'enn.  St.  351, 
355;  J^eyno/ds  v.  Commerce  Fire  Ins.  Co.,  47  N.  Y.  597,  604;  Anderson 
V.  Fitzgerald,  4  H.  L.  Cas.  484,  498,  507;  Fowkes  v.  Manchester,  etc., 
Life  Assurance  Ass'n,  3  B.  &  S.  917,  925. 

The  requirement,  however,  of  direct  and  positive  proof,  as  to  cer- 
tain matters,  did  not  make  it  necessary  to  establish  the  fact  and 
attendant  circumstances  of  death,  by  persons  who  were  actually 
present  when  the  insured  received  the  injuries  which  caused  his 
death.  The  two  principal  facts  to  be  established  were  external 
violence  and  accidental  means,  producing  death.  The  first  was 
established  when  it  appeared  that  death  ensued  from  a  pistol  shot 
through  the  heart  of  the  insured.  The  evidence  on  that  point  was 
direct  and  positive;  as  much  so,  within  the  meaning  of  the  policy, 
as  if  it  had  come  from  one  who  saw  the  pistol  fired;  and  the  proof, 
on  this  point,  is  none  the  less  direct  and  positive,  because  supple- 
mented or  strengthened  by  evidence  of  a  circumstantial  character. 

Were  the  means  by  which  the  insured  came  to  his  death  also 
accidental?  If  he  committed  suicide,  then  the  law  was  for  the  com- 
pany, because  the  policy  by  its  terms  did  not  extend  to  or  cover 
self-destruction,  whether  the  insured  was  at  the  time  sane  or  insane. 
In  respect  to  the  issue  as  to  suicide,  the  court  instructed  the  jury 
that  self-destruction  was  not  to  be  presumed.  In  Mallory  v.  Trav- 
ellers" Ins.  Co.,  47  N.  Y.  52,  54,  which  was  a  suit  upon  an  accident 
policy,  it  appeared  that  the  death  was  caused  either  by  accidental 
injury  or  by  the  suicidal  act  of  the  deceased.  "  But,"  the  court 
properly  said,  "  the  presumption  is  against  the  latter.  It  is  con- 
trary to  the  general  conduct  of  mankind;  it  shows  gross  moral 
turpitude  in  a  sane  person."  Did  the  court  err  in  saying  to  the 
iury  that,  upon  the  issue  as  to  suicide,  the  law  was  for  the  plain- 
tiff, unless  that  presumption  was  overcome  by  competent  evidence? 
This  question  must  be  answered  in  the  negative.  The  condition 
that  direct  and  positive  proof  must  be  made  of  death  having  been 
caused  by  external,  violent,  and  accidental  means,  did  not  deprive 
the  plaintiff,  when  making  such  proof,  of  the  benefit  of  the  rules  of 
law  established  for  the  guidance  of  courts  and  juries  in  the  investi- 
gation ind  determination  of  facts. 

Upon  like  grounds,  we  sustain  the  ruling  to  the  effect  that  the  jury 
should  not  presume,  from  the  mere  fact  of  death,  that  the  insured 
was  murdered.  The  facts  were  all  before  the  jury  as  to  the  move- 
ments of  the  insured  on  the  evening  of  his  death,  and  as  to  the  con- 
dition of  his  body  and  clothes  when  he  was  found  dead,  at  a  late 
hour  of  the  night,  upon  the  floor  of  his  office.     While  it  was  not  to 


TERMS   OF   THE   ACCIDENT    INSURANCE   CONTRACT.         317 

be  presumed,  as  a  matter  of  law,  that  tlie  deceased  took  his  own 
life,  or  that  he  was  murdered,  the  jury  were  at  liberty  to  draw  such 
inferences  in  respect  to  the  cause  of  death  as,  under  the  settled 
rules  of  evidence,  the  facts  and  circumstances  justified. 

We  are,  however,  of  opinion  that  the  instructions  to  the  jury 
were  radically  wrong  in  one  particular.  The  policy  expressly  pro- 
vides that  no  claim  shall  be  made  under  it  where  the  death  of  the 
insured  was  caused  by  "  ///^'////c;//^// injuries,  inflicted  by  the  insured 
or  any  other  person."  If  he  was  murdered,  then  his  death  was  caused 
by  intentional  injuries  inflicted  by  another  person.  Nevertheless, 
the  instructions  to  the  jury  were  so  worded  as  to  convey  the  iilea 
that  if  the  insured  was  murdered,  the  plaintiff  was  entitled  to 
recover;  in  other  words,  even  if  death  was  caused  wholly  by  inten- 
tional injuries  inflicted  upon  the  insured  by  another  person,  the 
means  used  were  "  accidental  "  as  to  him,  and,  therefore,  the  com- 
pany was  liable.     This  was  error. 

Upon  the  whole  case,  the  court  is  of  opinion  that,  by  the  terms  of 
the  contract,  the  burden  of  proof  was  upon  the  plaintiff,  under  the 
limitations  we  have  stated,  to  show,  from  all  the  evidence,  that  the 
death  of  the  insured  was  caused  by  external  violence  and  accidental 
means;  also,  that  no  valid  claim  can  be  made  under  the  policy,  if 
the  insured,  either  intentionally  or  when  insane,  inflicted  upon 
himself  the  injuries  which  caused  his  death,  or  if  his  death  was 
caused  by  intentional  injuries  inflicted  upon  him  by  some  other  person. 

The  judgment  is  accordingly  reversed,  and  the  cause  remanded, 
with  directions  to  grant  a  new  trial  and  for  further  proceedings 
consistent  with  this  opinion.' 


'  "  Death  through  external,  violent,  and  accidental  means  having  been  prove.1 
the  burden  of  proof  was  on  the  defendant  to  show  a  voluniary  exposure  to 
unnecessary  danger,  or  a  want  of  due  diligence.  Fi-eentan  v.  Traveldrs'  Ins. 
Co.,  \\\  Mass.  572;  Badeufeld  v.  Massarhitsetts  Accident  Association,  154  Mass. 
77.  The  question  is  not  the  same  as  would  arise  in  an  action  against  the  rail- 
road company  to  recover  damages  for  the  accident  which  caused  the  death.  In 
such  action,  the  relation  of  the  deceased  to  the  railroad  company  would  prob- 
ably be  that  of  a  bare  licensee,  to  whom  the  railroad  company  owed  no  duty 
except  to  abstain  from  reckless  and  wanton  conduct.  Hedigan  v.  Boston  6* 
Maine  Railroad,  155  Mass.  44.  and  cases  there  cited.  Moreover,  there  may  have 
been  such  a  want  of  positive  care  on  his  part  with  reference  to  approaching  cars 
as  would  prevent  a  recovery,  the  burden  being  upon  the  plaintiff  in  such  action 
to  prove  due  care  affirmatively.  In  the  present  action  the  burden  of  the  proof 
is  differeni,  and  the  questions  of  due  diligence  and  of  voluntary  exposure  to 
unnecessary  danger  arise,  not  upon  general  principles  of  the  law  of  negli- 
gence, but  upon  the  construction  of  the  contract  of  insurance  against  accidents. 
Clearly  a  contract  of  indemnity  against  accidents  should   be  construed   with 


31 8  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

V'l.  Terms  of  the  Mutual  Benefit  Insurance 
Contract. 

1.   In  General. 

COMMONWEALTH  v.  WETHERBEE. 

105  Mass.  149.  —  1870. 

\Reported  herein  at  p.  13.] 


IN  THE  MATTER  OF  THE  GLOBE  MUTUAL  BENEFIT 
ASSOCIATION. 

135  N.  Y.  280.  —  1892. 

\Reported  herein  at  p.  28. J 


2.  Where  the  Terms  Are  to  be  Found. 
EASTMAN  V.  PROVIDENT  MUTUAL  RELIEF  ASSOC. 

62  N.  H.  555-  — 1883. 
Assumpsit,  by  the  administrator  of  the  estate  of  George  H,  Gigar, 
to  reco\er  $2,000  insurance  on  the  Hfe  of  the  deceased.  The  defend- 
ants are  a  corporation  chartered  "  for  charitable  and  benevolent  pur- 
poses, and  furnishing  relief  and  assistance  by  means  of  mutual  agree- 
ments and  payments  of  funds,"  and  are  authorized  "  to  establish  all 
by-laws  and  regulations  which  may  be  necessary  to  carry  out  the  pur- 
poses of  this  act."  One  of  the  by-laws  reads  as  follows:  "  When 
a  member  dies  the  association  shall  pay,  within  sixty  days,  to  his 
direction,  as  entered  upon  his  certificate  of  membership,  the  sum 
of  two  thousand  dollars.  *  *  *  "  The  deceased  was  a  member 
of  the  Subordinate  Association,  No.  10,  located  at  Tilton.  He 
paid  all  fees,  dues,  and  assessments  to  the  time  of  his  death,  and 
was  otherwise  in  good  standing.  He  left  many  creditors,  but  no 
father,  mother,  brother,  sister,  nor,  so  far  as  known,  any  other 
relative.  He  held  a  membership  certificate  in  common  form,  which, 
after  reciting  his  admission,  provided  this:  "  In  accordance  with 
the  provisions  and  laws  governing  said  association,  a  sum  not 
exceeding  $2,000  will  be  paid  by  the  association  as  a  benefit,  upon 


more  liberality  to  the  assured  than  the  rules  of  common  law,  if  the  same  person 
seeks  under  ihem  to  put  the  responsibility  for  his  accident  upon  another."  — 
Keenes.  Assoc,  i6r  Mass.  149.  150.     See  also  Anthony  v.  Assoc,  162   Mass.  354. 


TERMS  OF  THE  MUTUAL  BENEFIT  INSURANCE  CONTRACT.      319 

due  noticeof  his  death  and  the  surrender  of  this  certificate,  to  such 
person  or  persons  as  he  may,  by  entry  on  the  record-book  of  the 
association,  or  on  the  face  of  this  certificate,  direct  said  sum  to  be 
piiJ,  pro^'iJing  h<;  is  in  good  standing  when  he  dies."  No  person's 
name  was  entered  on  the  record-book  of  the  association  or  on  the 
certificate,  showing  to  whom  the  benefit  should  be  paid.  No  ques- 
tion is  made  as  to  the  proper  notices  of  his  death,  nor  that  all  proper 
demands  and  proofs  have  not  been  made  according  to  the  by-laws. 
No  part  of  the  benefit  has  been  paid  to  the  administrator  or  to  any 
other  person. 

At  the  trial  the  defendants  offered  to  show  that  the  deceased  had, 
for  two  years  prior  to  his  death,  been  engaged  to  be  married  to 
A.  G.  S. ;  that  he  said  at  the  time  of  making  his  application  for  mem- 
bership, that  he  designed  the  benefit  ultimately  to  be  made  payable 
to  her,  and  that  he  afterwards  frequently  told  her  and  others  that 
he  intended  the  benefit  to  be  payable  to  her  in  case  of  his  death, 
and  this  was  repeated  to  her  a  short  time  before  his  death.  The 
evidence  was  excluded,  and  the  defendant  excepted.  The  plaintiff 
offered  to  show,  by  parol  evidence,  that  the  deceased  omitted  to 
insert  any  name  as  a  beneficiary,  with  the  intention  of  making  the 
benefit  of  $2,000  payable  to  his  administrator  for  the  benefit  of  his 
estate.  The  evidence  was  excluded  and  the  plaintiff  excepted. 
The  court  found  the  plaintiff  entitled  to  recover,  and  the  defendants 
excepted. 

Smith  J.  —  The  defendants  are  a  corporation  organized  for  char- 
itable and  benevolent  purposes.  These  purposes,  as  described  in 
their  charter,  are  the  "  furnishing  relief  and  assistance  by  means  of 
mutual  agreements  and  payments  of  funds."  Their  object  is 
more  particularly  defined  in  their  by-laws  to  be  "  to  secure  to 
dependent  and  loved  ones  assistance  and  relief  at  the  death  of 
a  member."  They  resort  to  assessments  for  the  procurement 
of  the  funds  to  discharge  their  mutual  obligations,  and  are  gov- 
erned by  by-laws  which  limit  and  define  those  obligations.  Such 
associations  for  the  general  purpose  of  mutual  protection  re- 
semble life  insurance  companies,  and  are  life  insurance  companies 
in  substance.  May  Ins.  (2d  ed.),  §  550;  Dennett  v.  Kirk,  59  N.  H. 
10;  Smith  V.  Billiard,  61  N.  H.  381;  Commomoealth  v.  IVetherbee,  105 
Mass.  149;  State  w.  Society,  72  Mo.  146.  But  a  beneficiary  certificate 
differs  considerably  in  its  nature  from  the  ordinary  life  insurance 
policy.  The  latter  is  generally  regarded  as  a  debt  payable  by  the 
company  to  the  estate  of  the  insured,  and  collectible  at  all  events 
from  the  company  by  the  legal  representatives  of  the  insured,  or  by 
parties  named  in  the  policy.      Hirschl  Law  of  Fraternities,  §  8. 


320  THE   TERMS   OF   THE    INSURANXE   CONTRACT. 

The  defendants'  contract  bound  them  to  pay  a  sum  not  exceed- 
ing $2,000,  as  a  benefit,  upon  due  notice  of  the  death  of  the  plain- 
tiff's intestate  and  the  surrender  of  his  certificate  of  membership, 
to  such  person  or  persons  as  he  might,  by  entry  on  the  record-book 
of  the  association  or  on  the  face  of  his  certificate,  direct  the  sum  to 
be  paid.  Does  the  neglect  of  the  holder  of  the  certificate  to  desig- 
nate a  beneficiary  in  the  manner  specified  absolve  the  association 
from  the  payment  of  the  benefit?  The  charter,  by-laws,  and  cer- 
tificate of  membership  taken  together  show  what  was  the  under- 
standing of  the  parties.  It  was  no  part  of  the  object  of  the  association 
to  provide  a  fund  for  the  payment  of  a  deceased  member's  debts, 
however  meritorious  such  purpose  might  be;  nor,  as  in  this  case, 
where  there  are  no  heirs,  and  the  claims  of  creditors  are  less  than 
the  amount  of  the  benefit,  that  the  benefit  should  escheat  to  the  es- 
tate. The  designation  in  the  certificate  of  one  class  —  such  person  or 
persons  as  Gigar  should  appoint  —  e.xcludes  the  other  classes  —  heirs, 
creditors,  etc.  The  certificate  was  neither  payable  to  the  deceased, 
nor  to  his  administrator,  assigns,  heirs,  estate,  or  legal  representa- 
tives. The  defendants  promised  to  pay  the  benefit  to  no  one  save 
such  person  or  persons  as  Gigar  should  direct  by  entry  upon  the  cer- 
tificate or  record-book.  By  the  contract  he  had  the  mere  power 
of  appointing  the  person  who  should  receive  the  benefit.  He  was 
bound  by  the  rules  of  the  association,  and  could  not  change  the 
beneficiary  in  a  way  not  in  conformity  with  them.  Kentucky  Masonic 
Mut.  Ins.  Co.  V.  Miller  s  Adyn'r,  13  Bush,  494.  Why  he  did  not 
exercise  his  power  of  appointment  it  is  unnecessary  to  inquire.  He 
may  not  have  decided  in  his  mind  who  should  receive  it.  He  may 
have  intended  that  his  associate  members  should  not  be  called  upon 
to  contribute  the  sums  required  to  fulfil  his  contract  with  the  asso- 
ciation. The  presumption  is,  that  he  intended  not  to  do  what  he 
omitted  to  do.  IVorley  v.  Association,  3  M'Crary,  53,  s.  c,  10  Fed. 
Rep,  227.  He  had  no  pecuniary  interest  in  his  membership,  and 
his  personal  representatives,  as  such,  can  take  no  interest  in  it 
after  his  death.  The  benefit  is  not  assets,  for  if  the  administrator 
can  collect  the  money,  it  must  go  primarily  to  Gigar's  creditors. 
The  charter,  by-laws,  and  certificate  show  that  neither  party  had 
any  such  understanding.  If  he  had  exercised  the  power  of  appoint- 
ment, his  administrator  could  not  maintain  a  suit  to  recover  the 
money;  and  his  neglect  to  exercise  it  does  not  give  the  adminis- 
trator the  power.  There  being  no  contract  to  pay  to  the  deceased 
or  to  his  legal  representative,  there  is  no  breach.  In  IVorley  v. 
Association,  supra,  upon  a  similar  state  of  facts,  it  was  held  that  the 
administrator  of  the  assured  could   not  recover.     McClitre  v.  John- 


TERMS  OF  THE  MUTUAL  BENEFIT  INSURANCE  CONTRACT.       32  I 

son,  56  Iowa,  620,  decides  that  where  a  life  policy  by  its  terms  is  pay- 
able to  a  person  other  than  the  assured  or  his  representatives,  the 
payee  cannot  by  will  make  a  different  disposition  of  the  fund  from 
that  directed  by  the  policy.  A  mere  power  of  appointment,  which 
is  not  exercised  prior  to  the  death  of  the  beneficiary  in  the  manner 
specified,  becomes  inoperative,  and  the  company  or  association  is 
not  bound  to  pay  it  to  any  one.  Maryland  Mut.  Benev.  Soc.  v. 
Clendinen,  44  Md.  429. 

The  evidence  offered  as  to  Gigar's  intention  as  to  whom  the 
money  should  be  made  payable  was  inadmissible  to  vary  the  con- 
struction of  the  certificate,  and  was  insufficient  to  constitute  a  trust. 
Wason  V.  Colbutn,  99  Mass.  342. 

Case  discharged. 

Allen  and  Clark,  JJ.,  did  not  sit;  the  others  concurred.' 


3.  Change  of  Terms. 
PELLAZZINO  V.  GERMAN    CATHOLIC    ST.  JOSEPH'S    SOC. 

16  Week.lv  La'v  Bulletin  and  Ohio  Law  Jour.  27.  —  1886. 
{Sp.    Term,  CinciiDiati  Superior  Cl.) 

Harmon,  J.  —  Defendant  is  a  mutual  benevolent  society  of  which 
plaintiff's  ward,  her  husband,  Joseph  Pellazzino,  had  been  for  six- 
teen years,  and  when  this  action  was  brought  was  a  member  in  good 
standing.  By  one  of  the  by-laws,  sick  members  were  entitled  to 
receive  three  dollars  per  week,  while  unable  to  pursue  their  usual 
business,  and  by  another  such  benefits  were  guaranteed  to  sick 
members,  though  in  public  charitable  institutions.  In  October, 
1881,  Pellazzino  became  insane,  and  in  April,  1882,  was  sent  to  Long- 
view  Asylum.  He  escaped  in  July,  and  remained  at  home  until 
October,  when  he  was  returned  to  the  asylum,  where  he  still  remains. 
*  *  *  By  the  original  by-laws  of  the  defendant  the  usual  right 
to  amend  them  was  reserved;  and  on  October  31,  1882,  after  due 
presentation  and  notice,  an  amendment  was  duly  adopted  limiting 
said  benefits  to  sick  members  to  thirteen  weeks  in  each  year.  The 
only  question  in  the  case  is  whether  the  rights  of  Pellazzino  to  bene- 
fits during  his  then  existing  inability  were  affected  by  this  amend 
ment,  he  not  having  been  present  at  or  agreed  to  its  adoption. 

'Accord  as  to  failure  of  designation  of  beneficiary.  Hellenberg\ .  Dist.  N'o. 
One,  94  N.  Y.  580. 

"  It  is  true  the  membership  certificate  bears  upon  its  face  no  promise  of 
indemnity,  but  it   entitles   ihc  hoIJer  10  membership  in  the  association  and  to 

LAW  OF  INSURANCE  T- 2  I 


322  THE   TERMS   OK   THE    INSURANCE   CONTRACT. 

That  members  whose  rights  to  benefits  have  become  fixed  by  ill 
ness  are  liable  to  have  them  lessened  or  taken  away  entirely  by  such 
amendments  was  decided  in  Fitgate  v.  Mut.  Society  of  St.  Joseph,  46 
\'t.  362;  but  the  court's  reasoning  and  conclusion  are  so  wide  a 
departure  from  the  common  principles  of  our  system  of  law  and  of 
natural  justice  that  I  should  hesitate  to  follow  them  if  that  case 
were  the  only  authority  on  the  subject.  I  certainly  am  not  willing 
tt)  do  so  after  reading  Poultney  v.  Bachmann,  62  How.  Pr.  466;  Guiid- 
lach  v.  Ger.  Mech.  Ass' n,  4  Hun,  339,  and  Herschl  on  the  Law  of 
Fraternities,  etc.,  p.  61. 

It  is  true,  as  argued  by  counsel  for  defendant  and  held  by  the 
court  in  Vermont,  that  by  the  terms  of  the  agreement  between 
the  members  which  constitutes  the  society,  and  of  that  between  the 
society  and  each  member  which  amounts  to  a  policy  of  insurance, 
a  right  to  amend  was  reserved.  But  it  was  a  right  to  amend  the 
by-laws,  not  to  repudiate  a  debt.  A  by-law  provides  what  the  rights  of 
members  shall  be  in  certain  events  if  they  continue  to  pay  their 
dues  until  such  events  happen;  this,  of  course,  by  virtue  of  the 
reserved  right,  may  be  amended  or  repealed.  But  when  the  event 
happens,  what  was  a  contract  depending  on  a  contingency  becomes 
in  law  a  debt.  The  right  to  modify  a  contract  does  not  include  the 
right  to  repudiate  a  debt  any  more  than  the  reserved  right  of  a 
legislature  to  repeal  the  charter  of  a  corporation  gives  it  the  right 
to  confiscate  its  property.  The  rights  of  Pellazzino  as  a  member, 
including  his  contingent  right  to  benefits,  were  subject  to  modifica- 
tion, whether  he  consented  at  the  time  or  not;  his  rights  as  a  creditor 
when  by  falling  ill  he  became  one,  this  contingent  right  so  becom- 
ing fixed,  are  not  made  so  by  the  language  of  the  contract  between 
him  and  defendant,  and  therefore  cannot  be  surrendered  except  by 
his  consent.  This  dual  character  of  a  member  who  has  fallen  ill, 
which  is  analogous  to  that  of  a  borrowing  member  of  a  building 
association,  was,  we  think,  overlooked  by  the  learned  court  in  Ver 
mont  and  the  learned  counsel  in  Cincinnati. 

Judgment  for  plaintiff.' 

all  rights  that  appertain  thereto,  and  ii  is  to  be  construed,  in  connection  with 
the  constitution  and  bylaws,  the  same  as  though  all  of  those  documents  were 
combined  in  one."  Railway  Cond.  Ben.  Assoc.  \.  Robinson,  147  111.  138,  152.  In 
Hellenberg  v.  Dist.  No.  One,  94  N.  Y.  580,  there  was  apparently  no  provision  for 
issuing  a  certificate,  and  the  court  said:  "The  charter  and  by-laws  of  the 
defendant  corporation  constituted  ihe  terms  of  an  executory  contract  to  which 
the  testator  assented  when  he  accepted  admission  into  the  order."  —  See  also 
Schtinck  V.  Fond,i^\  Wis.  369;    Worley  v.  Assoc,  lO  Fed.  227 

'"  Subsequent   or  existing  by-laws  are  valid  only  when  consistent  with  the 
charier,  and  confined  to  the  nature  and  objects  of  the  association.     While  a 


FIDELITY    AND   GUARANTY    INSURANCE   CONTRACTS.       323 

VII.  Terms  of  Fidelity  and  Guaranty  Insurance 

Contracts. 

I.   In  General. 
PEOPLE  V.  ROSE. 

174  III.  310.  —  1898. 
\_Reported  herein  at  p.  16.] 


2.   Fidelity  Insurance. 

FIDELITY  AND  CASUALTY  CO.,  OF  NEW  YORK  v. 
EICKHOFF. 

63  Minn,  170.  —  1895. 

Appeal  from  an  order  sustaining  a  demurrer  to  the  complaint, 
plaintiff  appeals.      Re^^ersed. 

Mitchell.  J. — Trie  plaintiff,  a  foreign  corporation,  is  what  is 
termed  a  "guaranty  insurance  company,"  engaged  in  the  business 
of  guarantying  to  employers  the  fidelity  of  their  employees.  This 
action  was  brought  to  recover  money  alleged  to  have  been  paid  to 
the  Red  River  Elevator  Company,  defendant's  employer,  upon  a 
bond  by  which  the  plaintiff  obligated  itself  to  make  good,  and  reim- 
burse to  the  elevator  company,  such  pecuniary  loss  as  it  might  sus- 
tain by  reason  of  the  infidelity  of  the  defendant  as  its  receiving 
agent  in  one  of  its  grain  elevators.  The  appeal  is  from  an  order 
sustaining  a  demurrer  to  the  complaint  on  the  ground  that  it  did 
not  state  facts  constituting  a  cause  of  action. 

subsequent  law,  because  of  the  assent  of  the  member,  may  add  new  terms  or 
conditions  to  a  certificate,  terms  or  conditions  reasonably  calculated  to  promote 
the  general  good  of  the  membership,  and  may  be  valid  and  binding,  it  does  not 
follow  that  a  law  operating  a  destruction  of  a  certificate,  or  a  deprivation  of  all 
rights  under  it,  would  be  of  any  force."  —  Supreme  Comtnandery  v.  Ainsworth, 
71  Aii.  436,  451. 

"  The  rights  of  members  in  these  associations  must,  of  course,  depend  upon 
the  articles  or  by-laws,  to  which  all  members  assent  when  becoming  such;  and, 
generally  speaking,  the  same  body  which  is  authorized  to  make  by-laws  can 
change,  amend,  or  repeal  those  already  made;  and  to  this  Thibert  agreed  when 
he  joined.  Bat  changes,  amendments,  and  repeals  are  subject  to  the  restrictions 
and  limitations  of  the  by-laws  themselves,  as  well  as  those  of  the  charter  or 
articles  of  association,  and  are  also  subject  to  the  implied  condition  of  being 
reasonable.  Bacon,  Ben.  Soc,  §9ia,  and  citations."  —  Thibert  v.  Supreme  Lodge, 
81  N.  W.  220,  223-4.  (Minn.^ 


324  THE   TERMS   OF   THE    IXSURANXE    CONTRACT. 

The  material  conditions  of  the  bond,  which  is  set  out  in  the  com- 
plaint, are  as  follows: 

"  The  aforesaid  company  [the  plainiiff]  shall,  *  •"■  *  subject  to  the  con- 
ditions and  provisions  herein  contained,  *  *  *  make  good,  and  reimburse 
to  the  said  employer,  such  pecuniary  loss  as  may  be  sustained  by  the  empioyer 
by  reaso'i  of  the  fraud  or  dishonesty  of  any  or  either  of  the  employees  [of  whom 
defendant  was  one]  named  upon  said  schedule,  or  added  thereto,  as  hereinafter 
provided,  in  conneclion  with  his  duties  as  receiving  agent  or  buyer:  *  ♦  * 
Provided,  *  *  *  that  the  company  shall  be  liable  only  for  the  acts  of  fraud  or 
dishonesty  on  the  pan  of  the  persons  mentioned  in  the  schedule,  who  act  as  receiv- 
ing agents  for  shortages  in  their  grain  accounts,  as  follows,  viz. :  There  shall  be 
deducted  from  the  total  amount  of  grain  and  dockage  received  by  the  receiving 
agent  at  said  elevator  or  elevators  screenings  and  dirt  from  sach  grain  as  has  been 
cleaned  at  said  elevator  or  elevators,  together  with  the  amounisof  shipments  based 
upon  weights  of  grain  and  dockage  at  terminals;  and  if  the  result  shows  a  deficit, 
and  the  shortage  is  not  caused  by  the  various  exceptions  agreed  to,  this  proof 
of  Joss  will  be  accepted  as  binding  on  the  part  of  the  company.  In  case  where 
screenings  and  dirt  are  burned  at  an  elevator,  they  shall  be  weighed  before 
being  burned,  and  the  weight  reported  daily  to  the  employer:  provided,  ihit 
the  company  shall  not  be  liable  for  the  grading  of  grain,  loss  by  heating,  dry- 
ing, or  leakage  of  cars,  or  other  damage,  shortages  caused  by  defective  weigh- 
ing apparatus  or  appliance,  or  for  shortages  in  any  elevator  or  elevators  caused 
by  the  failure  of  any  of  the  parties  mentioned  in  said  schedule  to  take  dockage 
enough  to  make  good  their  weights  for  grain  checks  issued,  as  the  employer 
hereby  assumes  the  risks  of  its  superintendents,  traveling  men,  and  otEcers  in 
giving  instructions  to  ils  receiving  agents  as  to  the  amount  necessary  to  take 
lo  make  good  the  amount  of  dockage  at  terminal  points,  and  the  action  of 
receiving  agents  in  taking  dockage,  the  loss  by  cleaning  grain,  and  the  ordinary 
shrinkage  arising  from  dust  in  handling  of  said  grain  in  elevators.  And  it  is 
further  agreed  that  the  company  shall  not  be  liable  for  errors  or  carelessness 
in  weighing  of  grain,  nor  for  thefts  of  grain  by  persons  other  than  those  covered 
by  this  bond,  nor  for  robbery  or  thefts  of  money  from  the  persons  so  covered, 
where  proofs  of  such  errors,  carelessness,  thefts,  or  robbery  are  conclusive,  as 
negligence  is  not  covered  by  this  bond." 

The  complaint  alleges  that  defendant,  in  consideration  of  plain- 
tiff's becoming  a  guarantor  for  him  by  executing  this  bond,  agreed 
to  indemnify  it  against  any  losses,  damages,  or  expenses  it  might 
sustain  or  become  liable  for  in  consequence  of  executing  the  bond; 
also,  that  this  bond  was  in  the  form  requested  by  the  defendant; 
also,  that  defendant  further  agreed  "  to  admit  the  voucher  or  other 
proper  evidence  of  such  payment  by  plaintiff  as  conclusive  evidence 
against  himself  as  to  the  fact  and  extent  of  his  liability  to  this  plain- 
tiff." It  is  further  alleged  that  defendant,  within  the  scope  of  his 
employment  as  receiving  agent  of  plaintiff,  issued  tickets  for, 
received,  and  took  in,  at  one  of  the  elevator  company's  elevators,  a 
certain  number  of  bushels  cf  wheat  and  dockage,  but,  of  the  same, 


FIDELITY   AND   GUARANTY    INSURANCE   CONTRACTS.       325 

only  delivered  to  the  elevator  company  a  certain  less  number  of 
bushels  at  the  termination  of  his  employment;  leaving  nearly  1,000 
bushels  which  he  never  delivered,  although  requested  to  do  so. 
The  complaint  then  states  specifically  the  manner  in  which  this 
shortage  was  ascertained  and  made  to  appear,  which  was  the  exact 
manner  provided  for  in  the  bond.  It  then  negatives  specifically 
that  this  shortage  was  caused  by  any  of  the  exceptions  named  in 
the  bond.  It  is  then  alleged  that  the  elevator  company  presented 
its  claim  for  this  shortage  to  the  plaintiff;  that  the  latter  was  com- 
pelled to  pay  the  same,  and  now  holds  the  elevator's  voucher  for  the 
same,  but  that  defendant  refuses  to  indemnify  the  plaintiff  for  the 
money  thus  paid  out  in  his  behalf.  Counsel  for  plaintiff  asks  us  to 
pass  upon  numerous  questions  touching  the  construction  of  this 
bond;  but  as  it  is  a  novel  contract,  and  its  provisions  prolix,  some- 
what obscure,  and  sometimes  apparently  contradictory,  we  deem  it 
"unwise,  upon  a  demurrer,  to  decide  much  except  what  is  necessary 
to  determine  whether  a  cause  of  action  is  stated.  Hence  we  shall 
confine  ourselves  mainly  to  the  specific  objections  made  by  defend- 
ant's counsel  to  the  sufficiency  of  the  complaint. 

1.  The  first  objection  urged  against  the  complaint  is  that  it  does 
not  allege  that  the  plaintiff  had  a  license  to  do  an  insurance  busi- 
ness in  this  State,  as  required  by  Gen.  St.  1894,  §  3331.  Notwith- 
standing that  there  would  seem  to  be  some  decisions  holding 
otherwise,  we  are  of  opinion  that  the  case  is  one  where  the  maxim, 
"  Omnia  rite  acta  prasumuntur,''  is  applicable.  Noncompliance 
with  the  laws  of  this  State  will  not  be  presumed,  but,  if  it  exists, 
must  be  set  up  in  defense.      Williams  v.  Cheney,   3  Gray,  215. 

2.  The  second  point  urged  is  that  a  contract  guarantying  the 
honesty  of  employees  is  void  as  being  against  public  policy;  that  it 
is  the  duty  of  all  employers  dealing  with  the  general  public  to 
employ  honest  agents;  that  the  effect  of  such  a  contract  as  set  out 
in  the  complaint  is  to  make  it  a  matter  of  indifference  to  an_elevator 
company  whether  it  employs  honest  or  dishonest  agents  to  deal  with 
the  patrons  of  the  elevator.  There  is  nothing  whatever  in  this 
objection.  The  same  principle  is  involved  in  every  bond  exacted 
from  a  public  officer  or  a  private  agent  as  security  for  the  faithful 
performance  of  his  duties.  And  it  is  wholly  immaterial  whether  the 
guarantor  is  a  private  person  or  an  incorporated  guaranty  insurance 
company.  The  advantages  of  the  latter  over  the  former  mode  of 
suretyship,  if  properly  conducted,  are  very  apparent.     2  May,  Ins., 

§541- 

3.  The  third  objection  is  that  the  stipulation  between  the  plain- 
tiff and  defendant  that  the  voucher,  or  other  evidence  of  payment 


326  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

by  plaintiff  to  tlie  elevator  company,  should  be  conclusive  evidence 
against  the  defendant  as  to  the  fact  and  extent  of  his  liability  to  the 
plaintiff,  is  void  as  being  against  public  policy.  This  question  is 
not  really  involved  in  this  appeal,  but,  as  it  is  one  which  will  neces- 
sarily arise  at  the  very  threshoUl  of  the  trial  of  the  action,  it  may 
properly  be  considered  now.  The  right  of  a  party  to  waive  the  pro- 
tection of  the  law  is  subject  to  the  control  of  public  policy,  which 
cannot  be  set  aside  or  contravened  by  any  arrangement  or  agree- 
ment of  the  parties,  however  expressed.  Thus,  an  agreement  to 
waive  the  defense  of  usury  is  void.  So,  also,  according  to  the 
weight  of  authority,  is  an  agreement,  made  at  the  time  of  contract- 
ing a  debt,  to  waive  the  prospective  right  of  exemption.  The  agree- 
ment under  consideration  is  more  than  a  mere  enlargement  of 
contractual  rights,  or  the  establishment  of  a  rule  of  evidence.  It 
provides  that  the  plaintiff  may,  by  his  own  ex  parte  acts,  conclu- 
sively establish  and  determine  the  existence  of  his  own  cause  of 
action.  In  short,  he  is  made  the  supreme  judge  of  his  own  case. 
The  case  is  not  at  all  analogous  to  the  common  provisions  in  build- 
ing and  construction  contracts,  by  which  the  determination  of  some 
third  person,  such  as  the  architect  or  engineer,  as  to  the  amount  or 
character  of  the  work,  is  made  conclusive  between  the  parties,  in 
the  absence  of  fraud  or  mistake.  Nor  is  it  at  all  analogous  to  a 
provision  in  an  executory  contract  for  the  sale  or  manufacture  of 
an  article  to  the  satisfaction  of  the  buyer,  where,  if  the  article  is 
declined,  the  parties  are,  in  contemplation  of  law,  left  in  statu  quo. 
In  the  present  case  the  attempt  is  to  provide  that,  after  the  alleged 
cause  of  action  has  accrued,  the  plaintiff  shall  be  the  sole  and  con- 
clusive judge  of  both  its  existence  and  extent.  Such  an  agreement 
is  clearly  against  public  policy.  If  the  provision  had  been  that  the 
voucher,  or  other  evidence  of  payment,  should  be  merely  pri?na 
facie  evidence  of  the  fact  and  extent  of  defendant's  liability  —  thus 
merely  shifting  the  burden  of  proof,  but  leaving  the  defendant  at 
liberty  to  rebut  thxs  prima  facie  evidence — although  even  then  a 
somewhat  drastic  provision,  we  do  not  think  that  it  could  be  held 
to  contravene  public  policy.  To  that  extent  we  think  this  provision 
is  valid,  but  in  so  far  as  it  assumes  to  make  the  voucher  of  payment 
by  plaintiff  conclusive  of  defendant's  liability,  it  is  void. 

4.  The  fourth  objection  urged  against  the  complaint  is  that,  while 
the  bond  only  covers  acts  of  fraud  and  dishonesty,  it  contains  no 
allegation  that  this  shortage  was  caused  by  the  fraud  or  dishonesty 
of  the  defendant.  Whoever  drafted  this  bond  used  language  very 
loosely,  and  employed  a  great  many  words  to  express,  or  else  con- 
ceal, ver,v  few   ideas.      But  after  taking  it  by  the  four  corners,  and 


FIDELITY    AND    GUARANTY    INSURANCE   CONTRACTS.        327 

considering  all  its  provisions,  our  construction  is  that  the  plaintiff 
was  only  bound  to  make  good  and  reimburse  the  elevator  company 
for  loss  sustained  by  reason  of  a  shortage  of  grain  caused  by  the 
actual  fraud  or  dishonesty  of  the  defendant.  But  the  bond  also 
provides  how  the  existence  and  amount  of  a  shortage  shall  be  ascer- 
tained, and  that,  when  thus  ascertained,  it  shall  be  accepted  as  evi- 
dence that  it  was  caused  by  the  fraud  or  dishonesty  of  the  defend- 
ant, and  not  by  any  of  the  various  other  causes,  enumerated  as 
exceptions,  for  which  the  plaintiff  was  not  to  be  liable;  in  other 
words,  that  a  shortage  ascertained  in  the  manner  prescribed  should 
be  prima  facie  evidence  of  its  existence,  and  that  it  was  caused  by 
defendant's  fraud  or  dishonesty,  thus  casting  the  burden  upon  the 
plaintiff  to  rebut  this  prima  facie  case  by  proof.  It  is  not  bound  to 
do  this  by  afifirmative  evidence  showing  the  particular  one  of  the 
causes,  enumerated  as  exceptions,  which  produced  the  shortage,  but 
may  do  it  by  negative  evidence  showing  that  it  was  not  caused  by 
the  fraud  or  dishonesty  of  the  defendant,  and  hence  must  have  been 
produced  by  one  or  more  of  the  excepted  causes.  This  it  may  do 
by  a  fair  preponderance  of  evidence  as  to  any  of  the  excepted 
causes,  except  errors  or  carelessness  in  weighing,  and  thefts  by  per- 
sons other  than  those  covered  by  the  bond,  in  which  cases  the  proofs 
must  be  conclusive.  The  word  "■conclusive,"  in  that  connection,  we 
think,  must  be  construed  as  meaning  so  strong  as  to  require  a  find- 
ing or  verdict  that  the  shortage  resulted  from  the  cause  alleged. 
This  may  also  be  done  by  negative  or  circumstantial  evidence.  So 
much  for  the  construction  of  the  bond. 

The  bond  having  been  executed  at  the  request  of  the  defendant, 
and  in  the  form  requested  by  him,  it  follows  that  his  obligation  to 
indemnify  the  plaintiff  is  coextensive  with  that  of  the  plaintiff  to 
reimburse  the  elevator  company;  also,  that  any  provisions  in  the 
bond,  as  to  proof  of  liability,  binding  on  the  plaintiff  in  favor  of  the 
elevator  company,  are  equally  binding  on  the  defendant  in  an  action 
brought  by  the  plaintiff  against  him  to  recover  indemnity  for  what 
it  has  paid  in  his  behalf.  Therefore  it  follows  that  the  complaint 
alleges  facts  which,  under  the  provisions  of  the  bond,  constitute  a 
cause  of  action  against  the  defendant;  that  is,  if  all  the  facts  alleged 
are  proved  on  the  trial,  it  would  follow,  as  a  matter  of  law,  that  the 
plaintiff  would  be  entitled  to  recover,  That  the  facts  alleged  are, 
in  one  sense,  merely  evidentiary,  and  may  be  rebutted  by  other 
evidence,  is  not  material,  inasmuch  as,  by  the  agreement  of  the 
parties,  they  m.ake  out  prima  facie  a  cause  of  action,  and  if  not 
rebutted  they  conclusively  make  it  out.  Otherwise  expressed, 
under  the  contract  of  the  parties,  the  facts  alleged  prove  that  the 


328  THE    TERMS   OF   THE    INSURANCE   CONTRACT. 

shortage  was  caused  by  defendant's  fraud  or  dishonesty.  Under 
these  circumstances,  an  express  and  direct  allegation  that  it  was  so 
caused  was  unnecessary.  The  complaint  states  a  cause  of  action. 
Order  reversed.' 


'  In  Antc-rican  Surety  Co.  v.  Pauly,  170  U.  S.  133,  the  bond  was  given  by  the 
company  to  a  bank  to  indemnify  the  bank  against  loss  arising  from  the  fraud 
or  dishonesty  of  its  cashier.  It  was  held  (i)  Under  the  clause  in  the  bond 
requiring  the  bank  to  notify  the  company  of  "  any  act  "  of  the  cashier  which 
might  involve  a  loss  for  which  the  company  would  be  responsible  "  as  soon  as 
practicable  after  the  occurrence  of  such  act  shall  have  come  to  the  knowledge  " 
of  the  bank,  notice  of  surpicion  of  the  cashier's  dishonesty  was  not  required 
to  be  given,  but  it  was  the  duty  to  give  notice  when  "  satisfied  that  the  cashier 
had  committed  acts  of  dishonesty  or  fraud  likely  to  involve  loss  "  to  the  com- 
pany upon  the  bond.  (2)  The  act  of  the  president  of  the  bank  in  giving  a  cer- 
tificate required  by  the  company,  of  the  cashier's  character,  was  not  authorized, 
nor  within  the  scope  of  his  employment,  and  the  president's  concealments  or 
misrepresentations  with  respect  to  the  certificate  were  not  to  be  imputed  to  the 
bank.  (3)  The  cashier  was  held  to  be  in  the  service  of  the  bank  after  the  sus- 
pension of  the  bank,  while  it  was  in  the  hands  of  the  national  bank  examiner, 
and  at  least  until  the  appointment  and  qualification  of  the  receiver,  although 
the  cashier  ceased  to  perform  the  ordinary  duties  of  cashier,  after  the  suspen- 
sion of  the  bank.  As  the  b:)nd  was  10  cover  losses  occurring  during  the  con- 
tinuance of  the  bond  and  which  should  be  discovered  within  six  months  there- 
after, losses  would  at  least  be  covered  which  were  discovered  within  six  months 
from  the  appointment  and  qualification  of  the  receiver. 

In  Fidelity  and  Casualty  Co.  v.  Gate  City  Bank,  q-j  Ga.  634,  a  bond  was  gii-en 
10  the  bank  y  the  company  to  indemnify  against  loss  by  the  fraud  or  dishonesty 
of  Redwine,  who,  as  assistant  cashier,  was  covered  by  the  bond.  The  court 
said:  "  The  main  question  in  the  case  is  whether  or  not,  under  ihe  stipula- 
tions expressed  in  the  contract,  the  knowledge  of  the  bank's  cashier  of  fraud  or 
dishonesty  on  the  part  of  Redwine,  or  of  any  act  done  by  him  involving  a  loss 
to  the  company  of  more  than  $100,  was  imputable  to  the  bank  itself.  *  *  * 
There  is  not  a  syllable  in  the  contract,  however,  bearing  the  construction  that 
the  bank  should  exercise  any  degree  of  diligence  in  inquiring  into  or  super- 
vising the  conduct  of  Redwine,  in  order  that  the  company  might  be  saved  from 
loss  through  his  misconduct.  The  bank  did  not  undertake  to  exercise  reason- 
able care  and  diligence  to  find  out  if  Redwine  had  become  untrustworthy;  but 
as  to  this  matter,  the  company,  in  effect,  invited  the  bank  to  repose  in  peace; 
for  it  guaranteed  that  Redwine  would  remain  honest  and  faithful.  Only  after 
knowledge  had  actually  come  to  the  bank  that  he  was,  or  had  become,  other- 
wise, was  it  under  any  duty  to  the  company;  and  then  it  was  only  required  to 
immediately  notify  the  company  of  what  it  had  ascertained.  *  *  *  In  the 
absence  of  any  guarantee  on  the  part  of  the  bank  that  its  other  emplr)yees 
would  be  h^inest  and  faithful,  and  in  view  of  the  purpose  of  the  condition 
inserted  in  the  bond,  it  would  seem  that  the  better  construction  of  it  would  be 
that  the  bank  only  obligated  itself  to  act  in  good  faith  and  impart  only  actual 
knowledge  on  its  part.  The  bond  would,  indeed,  be  of  no  practical  protei^tion 
if,  in   order  to   realize   its  benefits,  the  bank  had  to  insure,  not  cinly  the  honesty 


FIDELITY   AND    GUARANTY   INSURANCE   CONTRACTS.        329 

3.   Title  Guaranty  Insurance. 

QUIGLEY  V.  ST.  PAUL  TITLE  INSURANCE  CO. 

60  Minn.  275.  —  1895. 

Canty,  J.  — On  the  ist  day  of  July,  1889,  one  Amelia  Kingsley 
was  the  owner  of  a  certain  city  lot  in  St.  Paul,  and  was  then  erect- 
ing a  building  thereon,  which  was  not  completed  for  seveial  months 
thereafter.  She  procured  a  loan  of  $2,200  of  plaintiffs'  intestate, 
John  O.  Quigley,  and  mortgaged  the  lot  to  him  to  secure  the  repay- 
ment of  the  same.  The  mortgage  is  dated  oa  that  day,  but  was 
not  recorded  until  October  22,  1889.  The  business  of  the  defend- 
ant corporation  is  that  of  insuring  titles,  and  on  September  20,  1889, 
a  written  application  was  made  to  it  by  Quigley's  agent  to  insure 
the  title  of  this  lot  to  the  extent  of  the  mortgage  interest  of  Quig- 
ley therein.  The  application  was  accepted,  and  a  policy  of  insurance 
dated  October  22,  1889.  issued  to  Quigley  accordingly.  Thereafter 
Quigley  foreclosed  the  mortgage,  and  bid  the  lot  in  at  the  fore- 
closure sale.  The  time  to  redeem  expired  on  February  26,  1S92. 
No  redemption  was  made,  and  Quigley  became  the  owner  of  the  lot. 
But  between  October  10,  1889,  and  April  10,  1890,  work  and  labor 
of  the  value  of  $95  was  performed  for  Mrs.  Kingsley  in  painting  the 
building  as  a  part  of  the  erection  of  the  same.  A  mechanic's  lien 
was  filed  therefor.  Suit  was  brought  to. foreclose  the  same,  in 
which  Quigley  was  made  a  party,  and  a  judgment  of  foreclosure  was 
entered,  adjudging  the  mechanic's  lien  paramount  to  the  lien  of  the 
mortgage.  The  lot  was  sold  to  satisfy  the  judgment,  and  the  time 
to  redeem  from  that  sale  expired  on  August  18,  1892,  and  no 
redemption  was  made.  This  divested  the  title  of  Quigley  which  he 
had  acquired  under  his  foreclosure  sale  nearly  six  months  before. 
The  defendant  was  duly  notified  by  Quigley  of  the  commencement 
of  the  suit,  and  undertook  and  conducted  the  defense  of  the  same 
in  the  name  of  Quigley  under  the  provisions  of  the  policy.  The 
complaint  in  this  action  alleges  that  Quigley  was  in  his  lifetime  a 
resident  of  New  York,  and  that  neither  he  nor  these  plaintiffs  had 

and  fidelity,  but  the  faithful  and  conscientious  attention  to  duty,  of  a  dozen 
others  of  its  employees.  Stupidity  of  an  employee  in  not  comprehending  ordi- 
narily apparent  facts  and  circumstances  which  would  be  equivalent  to  actual 
knowledge  if  within  the  knowledge  of  the  bank  itself,  might  lead  to  a  for- 
feiture of  the  bond,  while  forgetfulness  or  mere  negligent  inattention  to  duty 
on  the  part  of  such  employees  would  bring  about  the  same  result.  The 
cashier,  according  to  the  undisputed  testimony  in  this  case,  was  a  mere 
employee.  Unless  the  bank  obligated  itself  to  use  his  eyes  and  ears,  it  haJ  no 
knowled'^e  of   ReJwins's  misconduct     *     *     *  " 


330  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

any  knowledge  or  notice  of  the  entry  of  said  judgment,  nor  of  the 
sale  under  it,  until  after  the  time  to  redeem  from  that  sale  had 
expired.  The  action  is  brought  to  recover  from  defendant  as  dam- 
ages tiie  value  of  the  lot —  which  is  alleged  to  be  $3,500  —  on  the 
ground  that  it  was  the  duty  of  defendant  to  indemnify  and  save 
harmless  Quigley  and  these  plamtiffs  from  this  mechanic's  lien,  and 
that  defendant  was  negligent  in  fading  Lo  satisfy  the  lien,  and  in 
failing  to  pay  the  sum  necessary  to  redeem  from  the  sale  under  the 
judgment  before  the  time  to  redeem  from  that  sale  expired,  and  in 
failifig  to  notify  plaintiffs  that  it  did  not  intend  to  redeem,  and 
thereby  give  plaintiffs  an  opportunity  to  do  so.  The  case  was  tried 
by  the  court  below  without  a  jury.  Judgment  was  ordered  for 
plaintiffs  for  $2,200  and  interest,  and  each  party  made  a  motion  for 
a  new  trial,  and  appeals  from  an  order  denying  such  motion.  *  *  * 
2.  We  will  next  consider  plaintiff's  appeal.  It  appears  by  the  bill 
of  exceptions  that  on  the  trial  plaintiffs  offered  to  prove  that  at  the 
time  their  title  to  the  lot  was  divested  by  the  expiration  of  redemp- 
tion on  the  mechanic's  lien  foreclosure,  the  lot  was  worth  $3,200. 
Defendant  admitted  that  at  that  time  the  lot  was  worth  more  than 
$2,200,  and  objected  to  the  offer  as  incompetent  and  immaterial. 
On  this  admission  the  court  sustained  the  objection,  holding  that  by 
the  terms  of  the  policy  the  limit  of  defendant's  liability  was  $2,200, 
and  this  ruling  is  assigned  as  error.  We  are  of  the  opinion  that  this 
assignment  of  error  is  well  taken.  The  policy,  by  its  terms,  limits 
the  liability  of  the  defendant  for  loss  on  account  of  certain  kinds  of 
defects  and  incumbrances  to  $2,200.  But  this  limitation  on  its  lia- 
bility does  not  apply  where  the  loss  is  caused  by  its  own  negligence 
in  the  performance  of  duties  which  it  assumes  to  perform  under  the 
contract.  The  foUowmg  are  all  the  parts  of  the  policy  which  we 
deem  material  on  the  question  now  under  consideration:  The 
defendant,  "  in  consideration  of  the  sum  of  $22  to  it  paid,  doth 
hereby  covenant  that  it  will  for  the  period  of  25  years  from  the  date 
hereof  indemnify,  keep  harmless,  and  insure  John  O.  Quigley,  New 
York,  the  mortgagee  named  in  a  certain  mortgage  executed  by 
Amelia  Kingsley,  *  *  *  from  all  loss  or  damage  not  exceeding 
twenty-two  hundred  dollars,  which  the  said  insured  shall,  during 
said  period  of  twenty-five  years,  sustain  by  reason  of  defects  in  the 
present  title  of  said  mortgagors  to  the  real  estate  or  interest 
described  in  Schedule  A,  hereto  annexed,  or  by  reason  of  liens  or 
incumbrances  affecting  the  same  at  the  date  hereof,  or  by  reason  of 
any  defect  apparent  of  record  in  the  execution  or  filing  for  record 
of  said  mortgage,  excepting  only  such  as  are  set  forth  in  Schedule 
B;  subject  to  the  conditions  and  stipulations  hereinafter  contained, 


FIDELITY   AND    GUARANTY    INSURANCE   CONTRACTS.        33 1 

and,  together  with  said  schedules,  made  a  part  of  this  policy." 
Attached  to  the  policy,  and  made  a  part  of  the  same,  are,  among 
others,  the  following  stipulations  and  conditions: 

"  (i)  This  company  will,  at  its  own  cost  and  charge,  defend  the  insured  in 
all  actions  of  ejectment  or  other  proceedings  founded  upon  a  claim  of  title 
or  incumbrance  prior  in  date  to  this  policy,  and  not  herein  and  in  Schedule  B 
excepted;  reserving,  nevertheless,  the  option  of  settling  the  claim,  or  of  pay- 
ing the  amount  of  its  liability  at  that  time  under  this  policy:  and  payment, 
or  tender  of  payment,  of  such  amount  shall  determine  all  liability  of  the 
company  under  such  claim.  In  case  any  such  action  or  proceeding  is  begun,  it 
shall  be  the  duty  of  the  insured  to  notify  the  company  thereof  in  writing, 
within  ten  days  after  service  of  the  summons  therein,  and  secure  to  it  the 
right  to  defend  the  action  or  proceeding,  and  to  give  all  possible  assistance 
therein;  but  such  defense  by  the  company  shall  not  change  or  alter  the  rights 
or  obligations  of  any  of  the  parties  hereto.  If  such  notice  shall  not  be  so  given 
and  such  righl  to  defend  be  secured  to  the  company  in  such  action  or  proceed- 
ing, then  this  policy  shall  be  void." 

"  (3)  As  lona:  as  the  interest  of  the  insured  in  said  real  estate  consists  of  a 
mortgagee's  interest  and  subject  to  redemption,  the  company  may,  at  its  option, 
at  any  time,  if  it  shall  deem  such  action  necessary  for  its  protection  under  this 
policy,  pay  the  amount  then  remaining  unpaid  on  said  mortgage,  and  in  that 
case  the  mortgagee  or  his  assigns  shall,  by  proper  instrument,  assign  to  this 
company  said  mortgage,  together  with  the  indebtedness  secured  thereby,  or 
the  proportion  thereof  remaining  unpaid." 

"  (5)  No  right  of  action  shall  accrue  under  this  policy  *  *  *  until  the 
insured  (unless  absolved  by  the  company)  has,  at  the  company's  option,  eiiher 
assigned  or  conveyed,  or  in  writing  agreed  on  demand  to  assign  and  convey  to 
the  company,  or  such  person  as  it  may  name,  all  the  right,  title,  and  interest  of 
the  insured  in  and  to  said  above-described  real  estate  or  interest,  at  the  follow- 
ing price,  viz.:  (a)  As  long  as  the  interest  of  the  insured  shall  continue  to  be  a 
mortgagee's  interest,  or  still  subject  to  redemption,  the  price  to  be  paid  shall 
be  the  amount  then  remaining  unpaid  on  said  mortgage  indebtedness,  or  the 
amount  necessary  to  permit  such  redemption,  (b)  If  the  interest  of  the  insured 
shall  by  foreclosure  and  the  expiration  of  the  period  of  redemption  have 
matured  into  an  ownership  in  fee  simple,  the  price  to  be  paid,  unless  deter- 
mined by  mutual  agreement,  shall  be  the  amount  bid  at  said  foreclosure  sale, 
with  interest  thereon  at  legal  rate  from  the  date  of  such  foreclosure  sale, 
together  with  any  and  all  subsequent  expenditures  by  the  insured  for  improve- 
ments, taxes,  or  assessments  on  said  real  estate,  with  interest  at  the  legal  rate 
on  each  of  such  expenditures  from  the  date  of  the  making  thereof,  less  any 
sum  or  sums  received  by  said  insured  from  any  partial  redemption  or  sale  of 
said  real  estate,  (c)  Any  payment  under  this  policy,  whether  made  as  the  con- 
sideration of  any  such  assignment  or  conveyance  as  aforesaid  or  otherwise, 
shall  reduce  the  liability  of  the  company  hereunder  by  the  amount  of  such 
payment." 

"  (7)  Claim  under  this  policy  having  been  settled,  the  company  shall  he  sub- 
rogated to  all  rights  of  action  and  remedies  for  recovery;  and  the  insured 
hereby  assigns  and  warrants  to  the  company  such  rights,  and  agrees  that  his 
name  may  be  used  in  all  lawful  proceedings  therefor.     If  the  payment  does  not 


332  THE  ti:rms  ok  the  insurance  contract. 

cover  the  loss  of  the  insured,  the  company  shall  be  interested  in  such  rights 
with  the  insured  in  the  proportion  of  the  amount  paid  to  the  amount  of  the  loss 
not  hereby  covered;  and  the  insured  warrants  that  such  rights  of  subrogation 
shall  vest  in  the  company,  unaffected  by  any  act  of  the  insured." 

It  will  be  seen  by  an  e.Kamination  of  the  provisions  in  the  body  of 
the  policy,  above  quoted,  that  the  defendant  agreed  to  indemnify, 
save  harmless,  and  insure  Quigley  against  loss  from  three  different 
causes:  (i)  "'  Defects  in  the  present  title;"  (2)  "  liens  or  incum- 
brances affecting  the  same  at  the  date  hereof;"  (3)  "  any  defect 
apparent  of  record  in  the  execution  or  filing  for  record  of  said  mort- 
gage." Its  liability  for  loss  from  these  three  causes  is  expressly 
limited  to  $2,200,  and  the  insured  has  a  right  to  recover  that 
amount  of  loss  arising  from  any  or  all  of  these  three  causes  alone, 
and  this  fairly  implies  that,  if  his  loss  arises  from  some  other  cause 
besides  these  three,  this  limitation  does  not  cover  it  also.  In  this 
case  it  is  claimed  that  his  loss  does,  at  least  in  part,  arise  from 
some  other  cause,  to  wit,  that  of  the  negligence  of  defendant. 
Under  said  section  or  subdivision  i  of  the  stipulations  and  con- 
ditions attached  to  the  policy,  the  defendant  has  the  option  to 
defend  the  suit,  or  pay  the  claim  on  which  suit  is  brought,  or  pay 
the  insured  the  amount  of  its  liability  under  the  policy.  If  it  elects 
to  defend  the  suit,  it  must  be  held  to  do  so  for  its  own  benefit,  and 
must  exercise  reasonable  care;  if  it  fails  to  do  so,  it  is  liable  for  any 
loss  caused  by  such  failure,  and  the  limitation  above  quoted  does 
not  apply.  Neither  does  the  provision,  "  but  such  defense  by  the 
company  shall  not  change  or  alter  the  rights  or  obligations  of  any 
of  the  parties  hereto,"  contained  in  said  section  i,  relieve  the  com- 
pany from  liability  for  its  negligence,  but  it  also  implies  that  such 
defense  will  be  conducted  with  reasonable  care,  and  must  be  read 
as  if  that  condition  was  expressly  attached  to  it.  Even  if  the  claim 
on  which  the  suit  was  brought  was  one  against  which  defendant  had 
not  insured  the  title,  and  against  which  it  was  not  obliged  to 
defend,  still,  if  it  voluntarily  undertook  to  indemnify  the  insured, 
and  defend  the  suit  for  him,  it  would  be  obliged  to  use  reasonable 
care,  and  would  be  liable  for  its  negligence  or  misconduct  by  reason 
of  which  he  was  misled  and  injured.  It  may  be  proper  here  to 
remark  that  no  claim  is  made  that  the  lien  in  question  is  not  covered 
by  the  policy  of  insurance.  Neither  is  it  claimed  that  subdivision 
or  section  5  above  quoted  in  any  manner  limits  the  amount  of 
recovery,  and  we  cannot  see  that  its  provisions  have  any  other 
effect  than  that  of  creating  a  condition  precedent  to  the  commence- 
ment of  the  action.  It  certainly  cannot  be  held  that  the  option 
there   provided   for  must   be   held   open   so   as  to  give  the  insurer  a 


FIDELITY   AND    GUARANTY    INSURANCE   CONTRACTS.        333 

chance  to  speculate  on  the  amount  of  the  verdict,  and  accept  the 
option  afterwards  if  more  favorable  •  to  him  than  the  verdict. 
Neither  would  the  prices  there  provided  for  be  in  any  sense  the 
measure  of  damages.  We  are  of  the  opinion  that  it  was  error  to 
exclude  the  testimony  offered. 

The  court  also  excluded  the  affidavit  of  one  Stevens,  who  was  an 
officer  of  the  defendant  corporation,  and  who  was  acting  within  the 
apparent  scope  of  his  authority  when  he  made  the  affidavit,  in  which 
he  set  out  the  reasons  why  defendant  failed  to  redeem  the  lot  from 
the  mechanic's  lien  foreclosure  sale.  The  evidence  was  competent 
as  an  admission  tending  to  prove  negligence  on  the  part  of  the 
defendant,  and  it  should  have  been  received.  This  disposes  of  the 
case.  The  order  denying  defendant's  motion  for  a  new  trial  is 
affirmed,  and  the  order  denying  plaintiffs'  motion  for  a  new  trial  is 
reversed,  and  a  new  trial  is  granted. 


MINNESOTA  TITLE  INSURANCE  CO.  v.  DREXEL. 
70  Fed.  194;  36  U.  S.  App.  50.  —  1895. 

Caldwell,  C.  J.  — The  only  error  assigned  is  the  overruling  of 
the  demurrer  to  the  complaint.  The  contention  of  the  learned 
counsel  for  the  plaintiff  in  error  is  that  the  foreclosure  of  the  mort- 
gages by  notice  and  sale,  and  the  purchase  of  the  mortgaged  prem- 
ises by  the  mortgagee  for  the  full  amount  of  the  mortgage  debt, 
"  canceled  the  mortgage  debt  as  completely  as  though  it  had  been 
paid  in  cash, "and  that  such  satisfaction  of  the  mortgage  debt  inures 
to  the  benefit  of  the  insurer,  and  absolves  it  from  liability  on  its 
policy  as  fully  as  if  the  mortgage  debt  had  been  extinguished  by  a 
cash  payment  made  by  the  mortgagor.  The  contention  is  not 
sound.  The  cases  cited  by  counsel  to  support  this  contention  have 
no  application  to  this  case. 

The  case  at  bar  depends  upon  the  construction  of  the  policy  of 
insurance,  and  the  same  liberal  rules  of  interpretation  that  apply  to 
fire  and  other  policies  of  insurance  are  applicable  to  the  policy  in 
suit.  The  policy  in  suit,  on  the  point  in  question,  is  not  ambiguous, 
nor  its  meaning  doubtful;  but  if  there  was  room  to  doubt  as  to  its 
proper  interpretation,  the  doubt  would  have  to  be  resolved  in  favor 
of  the  insured,  according  to  the  settled  canon  of  construction 
applicable  to  such  contracts.  National  Bank  v.  Insurance  Co.,  95 
U.  S.  673,  678;  Thompson  V.  Insurance  Co.,  136  U.  S.  287,  297,  10 
Sup.  Ct.  1019;  2  Whart.  Cont.  670;  Kahmueiler  v.  Insurance  Co.., 
14  C.  C.  A.  485.  67  Fed.  483. 


334  THE   TERMS   OF   THE    INSURANCE   CONTRACT. 

The  insurer  is  not  a  surety.  The  defendant  company,  for  an 
adequate  consideration,  agreed  to  "  indemnify,  keep  harmless,  and 
insure  "  Drexel,  the  mortg>igee,  "  from  all  loss  or  damage,  not 
exceeding  $55,000,"  the  amount  of  the  mortgage  debt,  which  he  or 
his  assigns  might  sustain  by  reason  of  defects  in  the  title  to  the 
mortgaged  premises,  or  by  reason  of  liens  or  incumbrances  tnereon 
existing  at  the  date  of  the  policy.  The  contract  is  plain  and 
explicit  on  this  point.  In  a  word,  it  is  a  guaranty  that  the  mort- 
gagee should  not  suffer  any  loss  or  damage  by  reason  of  defects  in 
the  title  to  the  property,  or  liens  or  incumbrances  thereon,  existing 
at  the  date  of  the  policy.  Under  this  guaranty,  if  the  mortgaged 
property,  with  a  clear  title  and  free  from  incumbrances,  was  worth 
the  amount  of  the  mortgage  debt,  the  mortgagee  could  confidently 
rely  upo.i  the  sufificiency  of  his  security.  The  mechanics'  liens  upon 
which  the  mortgaged  property  was  sold  were  liens  upon  the  prop- 
erty at  the  date  of  the  policy.  The  defendant  company,  neverthe- 
less, refused  either  to  pay  these  prior  liens,  or  to  pay  the  insured 
the  amount  bid  for  the  property  at  the  foreclosure  sale,  which  was 
the  amount  of  his  mortgage  debt,  thus  forcing  the  insured,  in  order 
to  protect  his  security  and  his  title,  to  redeem  the  property  from  the 
sale  on  the  mechanics'  liens. 

The  policy  provides  that,  where  by  foreclosure  the  insured  has 
acquired  the  title  to  the  property,  the  price  to  be  paid  by  the  insurer 
"  shall  be  the  amount  bid  at  said  foreclosure  sale."  The  defendant 
was  obligated,  by  the  terms  of  the  policy,  either  to  pay  this  amount, 
or  to  relieve  the  property  from  all  liens  existing  thereon  at  the  date 
of  the  policy.  It  refuses  to  do  either,  and  seeks  to  escape  all  lia- 
bility by  putting  the  burden  of  freeing  the  property  from  the  liens 
existing  ihereon  at  the  date  of  the  policy  upon  the  mortgagee,  on 
the  ground  that,  at  the  sale  of  the  property  under  the  mortgages, 
the  mortgagee  bid  the  full  amount  of  his  mortgage  debt,  and  there- 
by himself  assumed  the  burden  of  paying  off  the  mechanics'  liens. 
Under  the  terms  of  the  policy,  the  mortgagee  had  a  right  to  look  to 
the  defendant  for  the  extinguishment  of  all  liens  upon  the  property 
which  existed  at  the  date  of  the  policy,  and  to  gauge  his  bid  on  the 
assumption  that  the  defendant  would  discharge  its  obligation  in  this 
regard.  The  contention  of  the  defendant  is  in  the  teeth  of  a  very 
plain  provision  of  the  policy  which  declares: 

"  Payment,  discharge,  or  satisfaction  of  said  mortgage  indebted- 
ness (except  by  foreclosure  of  said  mortgage)  *  *  *  shall  fully 
terminate,  annul,  and  avoid  this  policy,  and  all  liability  of  the  com- 
pany thereunder." 

The  case  at  bar  fails  directly  within  this  exception.     We  need  not 


FIDELITY    AND    GUARANTY    INSURANCE   CONTRACTS.        335 

consider  what  effect  this  provision  would  have  where  the  property 
was  purchased  by  a  stranger  at  the  foreclosure  sale.  Beyond  con- 
troversy, it  includes  and  binds  the  parlies  to  the  contract,  and  is 
applicable  to  every  case  where  the  mortgagee,  insured,  becomes  the 
purchaser  of  the  property  at  the  foreclosure  sale  for  the  amount  of 
his  mortgage  debt. 

The  judgment  of  the  Circuit  Court  is  attirmed. 


PART  V. 
Limits  of  the  Contractual  Obligation. 


I.  Beneficiaries. 
a.  Fire  Insurance. 

I.   In  General. 

QUARLES  V.  CLAYTON. 

87  Tenn.  30S.  —  1889. 

LuRTON,  J. — The  deceased  husband  of  appellant  took  out  a 
policy  of  fire  insurance  upon  his  dwelling,  loss  payable  to  the  assured, 
his  executors,  or  administrators.  Before  the  expiration  of  the  policy 
by  time,  but  after  the  death  of  the  assured,  the  house  was  acci- 
dentally burned.  The  insurance  company,  by  consent  of  the  claim- 
ants, paid  the  loss  into  the  hands  of  the  defendant,  under  an 
agreement  that  the  fund  should  be  held  subject  to  the  legal  rights 
of  complainant,  if  any  she  had,  to  be  thereafter  determined  by  the 
courts.  An  agreed  case  was  made  up  and  submitted  to  the  Chan- 
cery Court,  and  from  the  decree  of  the  Chancellor  Mrs.  Quarles  has 
appealed. 

Appellant  is  the  widow  of  the  assured,  and  claims  a  life  estate  in 
the  fund  upon  the  following  state  of  facts: 

Before  her  marriage  to  the  assured  a  marriage  contract  was 
entered  into  and  duly  executed  in  the  county  of  their  residence,  by 
which,  among  other  things  not  material  to  be  here  mentioned,  it 
was  agreed : 

"  That  all  the  property  and  estate,  both  real  and  personal,  now  owned  or 
hereafter  to  be  acquired  by  said  John  W.  Quarles,  shall  continue  to  be  his,  and 
shall  remain  wholly  unaffected  by  said  contemplated  marriage  with  said  Mrs. 
Nancy  M.  Kirk,  in  favor  of  whom  no  marital  or  other  rights  in  his  said  prop- 
erty and  estate  shall  attach  or  inure  by  virtue  of  said  contemplated  marriage 
relation,  further  or  otherwise  than  is  expressed  and  provided  in  this  instrument, 
and  he  hereby  reserves  the  right  and  privilege  of  making  such  suitable  pro- 
vision for  her  out  of  his  estate  as  he  may  at  any  time  desire,  either  by  deed  of 

[336J 


BENEFICIARIES.  337 

gifi,  last  will  and  testament,  or  otherwise.  If  he  die  without  making  any  such 
provision  for  her,  then  she  shall,  out  of  his  real  estate,  if  she  survives  him, 
have  a  comfortable  hotne,  to  consist  of  say  about  one  hundred  and  forty  acres 
of  his  lands,  in  which  ivill  be  included  his  d7iie//i>/^^  and  out  houses,  the  same  to  be 
surveyed  and  laid  off  to  her  by  proper  metes  and  bounds,  and  in  such  manner 
as  will  be  most  useful  and  convenieni  to  her,  and  with  least  injury  to  his  estate. 
This  home  so  laid  ofif  to  her  to  be  and  remain  to  her  own  proper  use,  support, 
and  benefit  for  and  during  the  term  of  her  natural  life,  and  after  her  death  to 
take  such  directions  as  he  may  give  to  it  by  his  last  will  and  testament,  or  other 
proper  mode  of  disposing  of  real  estate,  and  if  he  die  without  any  will,  and 
without  disposing  of  the  remainder  interest  in  said  '  home  '  as  above  provided 
for  and  described,  then  the  same  shall  descend  to  his  proper  heirs,  and  be  dis- 
tributed according  to  the  laws  of  the  State  of  Tennessee." 

After  the  marriage  the  dwelling-house  above  described,  which 
was  then  and  after  the  residence  of  Mr.  Quarles  and  wife,  was 
insured,  under  a  contract,  as  before  stated,  that  the  loss  should  be 
paid  to  the  assured,  the  husband  of  appellant,  his  executors,  or 
administrators.  Mr.  Quarles  died  intestate,  and  without  having 
made  any  provision  for  his  widow  other  than  that  contained  in  the 
marriage  contract.  The  widow  continued  to  occupy  the  dwelling  as 
her  residence  until  it  was  destroyed  by  fire.  The  portion  of  the 
farm  of  the  decedent  which  was  to  be  assigned  to  her  under  the 
marriage  agreement  had  not  at  the  time  of  the  fire  been  laid  off  by 
metes  and  bounds,  but  this  was  subsequently  done  to  the  satisfac- 
tion of  all  concerned.  This  estate  was  so  laid  off,  as  required  by 
the  contract,  as  to  include  the  out-houses  of  the  assured,  and  like- 
wise the  site  of  the  burned  mansion  house.  The  insurance  policy 
was  not  taken  out  upon  any  agreement  or  contract,  express  or 
implied,  that  she  was  to  have  any  interest  whatever  therein. 

Under  this  state  of  facts,  has  appellant  any  equitable  or  legal 
interest  in  the  proceeds  of  this  fire  policy?  That  the  precise 
boundaries  of  the  one  hundred  and  forty  acres  to  be  laid  off  to  her 
had  not  been  ascertained  by  survey  at  the  time  of  the  fire  can  cut 
no  figure,  because  it  was  to  be  laid  off  in  all  events  so  as  to  include 
the  mansion  house  and  out-houses  It  seems  equally  clear  that  she 
cannot  hold  the  estate  of  her  husband  responsible  for  the  value  of 
the  house,  because  at  his  death  her  contingent  right  to  the  house 
for  her  life  ripened  and  became  a  vested  interest  for  her  life,  and  at 
the  moment  her  husband  died  intestate,  and  without  having  made 
any  other  provision  for  her,  the  house  was  standing,  and  her  right 
to  the  use  and  possession  at  once  accrued.  Her  interest  became  at 
once  an  insurable  interest,  and  the  destruction  of  the  house  by  any 
means  after  her  husband's  death  was  not  an  injury  for  which  his 
estate  or  his  heirs  would  be  responsible. 

LAW  OF  INSURANCE  —  22 


338  LIMITS   OF   THE    CONTRACTUAL   OBLIGATION. 

Whatever  right  she  had  to  any  interest  in  this  fund  must  arise 
from  the  contract  of  insurance.  The  person  assured  against  loss  in 
the  policy  paid  upon  the  premises  of  Mrs.  Quarles  was  the  owner 
himself.  By  all  the  authorities,  a  contract  of  fire  insurance  is  a  per- 
sonal contract,  and  assures  the  interest  alone  of  the  assured  in  the 
property,  in  the  absence  of  some  agreement  or  trust  to  the  contrary. 
The  policy  taken  out  by  Mr.  Quarles  contained  the  usual  provision 
prohibiting  any  assignment  of  the  policy  without  the  consent  of  the 
insurer.  It  also  contained  the  further  stipulation  that  the  policy 
should  become  void  "  in  case  any  change  shall  take  place  in  title  or 
possession,  except  by  succession  by  reason  of  death  of  the  assured." 
These  provisions  have  been  upheld  by  the  courts  as  reasonable  con- 
ditions, limiting  and  restricting  the  liability  of  the  insurer.  That 
they  are  reasonable  is  obvious  when  we  consider  that  the  contract 
is  one  for  the  personal  indemnity  of  the  assured  against  a  loss  affect- 
ing his  interest  in  the  property  covered  by  the  policy.  The  insurer 
contracts  with  reference  to  the  character  of  the  assured  for  integrity 
and  prudence.  He  might  be  very  willing  to  agree  to  make  good  the 
loss  of  one  by  the  destruction  of  property  owned  by  him,  while  he 
would  be  altogether  unwilling  to  insure  the  same  property  if  owned 
by  another.  Again,  the  contract  undertakes  to  make  good  any  loss 
which  the  assured  may  sustain,  and  from  this  it  follows  that  if  the 
assured  has  parted  with  his  interest  before  the  loss,  he  cannot  ask 
to  be  indemnified  because  he  has  sustained  no  loss.  The  provision 
against  change  of  titk  is  therefore  in  precise  harmony  with  the  per- 
sonal character  of  the  contract.  In  some  fire  insurance  contracts 
the  stipulation  against  change  of  title  extends  so  far  as  to  make  the 
policy  void  should  such  change  of  title  be  brought  about  by 
the  death  of  the  assured.  The  title  in  such  case  is  no  longer  in 
the  assured,  but  has  by  the  law  passed  to  his  heirs,  or  by  will  to  his 
devisees,  and  a  change  of  title  so  accruing  has  been  held  to  defeat 
an  action  for  a  loss  occurring  after  the  death  of  the  assured.  Shcr- 
woodx.  Agricultural  Insurance  Company.,  73  N.  Y.  447;  s.  c,  29  Am. 
Rep.  180;  Hine  v.   Woohuorth,  93  N.  Y.  75;    s.  c,  45  Am.  Rep.  176. 

The  contract  is  not  therefore  one  which  attaches  to  or  follows  the 
property,  being  one  for  the  personal  indemnity  of  the  assured,  and 
when  the  insurer  does  not  assent  to  the  assignment  of  the  policy  to 
the  grantee  of  the  property,  neither  the  assured  nor  his  assignees  of 
the  property  can  recover  upon  the  policy.  Hobbs  v.  Insurance  Com- 
pany, I  Sneed,  444. 

But  this  policy  was  not  annulled  by  the  change  of  title  which 
occurred  by  the  death  of  the  assured.  It  expressly  provides  that  a 
change  of  title  shall  defeat  the  policy,  except  where  it  occurs  "  by 


BENEFICIARIES.  339 

succession  By  reason  of  the  death  of  the  assured.''  The  legal  effect  of 
this  exception  is  to  continue  and  extend  the  policy,  notwithstand- 
ing the  change  of  title  by  death  of  the  assured.  In  whose  favor  is 
this  continuance?  It  has  been  ably  argued  that  the  effect  of  this 
continuance  is  in  favor  of  those  who,  by  "  succession,"  take  the 
property  covered  by  the  risk,  and  that  though  it  may  be  payable  to 
the  executor  or  administrator  of  the  assured,  yet  he  will,  in  case  the 
risk  was  upon  real  estate,  take  and  hold  in  trust  for  those  who,  by 
succession,  have  taken  the  property,  and  who  are  therefore  the  per- 
sons damnirisd  by  the  loss.  This  word  "  succession,"  in  the  con- 
nection in  which  it  appears,  is  a  word  of  technical  meaning,  and  refers 
to  those  vvho  by  descent  or  will  take  the  property  of  a  decedent. 
It  is  a  word  which  clearly  excludes  those  who  take  by  deed,  grant, 
gift,  or  any  former  purchase  or  contract.  This  meaning  is  made 
more  obvious  when  we  consider  that  the  contract  provided  against 
any  change  of  title  except  by  succession,  and  to  more  directly  affix  a 
limited  and  technical  meaning,  the  explanatory  words  added,  "  by 
reason  of  the  death  of  the  assured. ' ' 

There  is  much  plausibility  in  the  argument  that  inasmuch  as  the 
policy  is  continued,  notwithstanding  a  change  of  title  has  occurred, 
that  in  case  the  risk  is  upon  real  estate,  that  the  extension  is  by 
intendment  of  the  contract  to  operate  as  an  indemnity  to  those  who 
by  "  succession  "  have  become  the  owner  of  the  property.  In  such 
a  case  the  administrator  or  distributee  would  not  have  any  interest 
to  be  insured,  while  the  heir  or  devisee,  upon  whom  the  title  has 
been  cast,  would  be  the  legal  and  equitable  owner  and  the  person 
to  suffer  by  loss. 

The  root  principle  of  insurance  being  that  the  loss  is  payable  only 
to  the  extent  that  the  assured  had  an  insurable  interest,  would  seem 
to  preclude  the  administrator  in  such  a  case  from  any  recovery,  or 
make  him  a  trustee  for  the  heir  of  what  he  should  recover  when  the 
loss  occurred  after  the  property  had  passed  by  "  succession  "  to  the 
heir.  This  seems  to  be  the  holding  of  the  courts  when  the  question 
has  arisen,  although  the  text-book  writers  seem  not  to  have  seized 
upon  the  distinction.  IVyman  v.  IVynian,  26  N.  Y.  253;  Culhertson 
V.  Cox.,  29  Minn.  309;  s.  c,  43  Am.  Rep.  204.  But  does  the  appel- 
lant take  any  interest  in  the  insured  property  by  succession?  If  she 
had  taken  as  dowress,  or  under  the  homestead  laws,  she  would  be 
within  the  principle  just  discussed,  and  would  be  within  the  express 
holding  of  the  two  cases  last  cited.  Unfortunately  for  this  litiga- 
tion, appellant  takes  whatever  interest  she  has  in  the  property 
under  the  fire  policy  by  virtue  of  her  marriage  contract.  She  is  not 
entitled  to  homestead  or  dower,  for  she  expressly  agreed  to  take  in 


340  LIMirS   OF   THE   CONTRACTUAL   (JliLlOA  HON. 

lieu  of  all  riglits  which  the  law  would  have  given  her,  the  provision 
which  she  covetiauted  for  by  marriage  contract.  This  interest  was 
a  contingent  one.  It  depended  upon  two  events  —  first,  that  she 
should  survive  her  husband;  and  second,  that  he  should  not,  by 
deed  or  will,  make  any  other  provision  for  iier.  Both  of  these 
events  occurred,  and  instantly  upon  the  death  of  her  husband  she 
became  seized  of  an  estate  for  her  life  in  the  insured  premises.  She 
therefore  took  this  mansion  house  as  the  grantee  of  her  husband  and 
did  not  take  it  by  "succession."  But  it  is  insisted  that,  however 
she  acquires  her  estate,  she  has  an  equitable  interest  to  a  life  estate 
in  this  fund,  because  it  represents  the  premises  which  she  had  a 
right  to  occupy  and  enjoy  during  her  life.  This  presents  a  strong 
case  in  morals,  but  her  legal  rights  are  not  so  clear.  The  rule  is 
well  settled  that  no  equity  attaches  upon  the  proceeds  of  a  fire 
policy  in  favor  of  third  parties  who,  in  the  character  of  grantee, 
mortgagee,  or  creditors,  may  have  sustained  loss  in  the  absence  of 
some  trust  or  contract  to  that  effect.  May  on  Insurance,  §  456;  3 
Kent's  Comm.,  loth  ed.,  499. 

This  rule  applies  as  well  to  vendors  and  lienors  of  every  class  as 
to  mortgagees  who  may  have  had  their  security  impaired  by  a  loss 
by  fire.  This  court,  in  a  well-considered  case,  held  that  the  holder 
of  a  mechanic's  lien  upon  a  building  had  no  equitable  lien  on  a  fire 
policy  effected  by  the  owner  and  assigned  to  a  mortgagee.  Galyon 
V.  Ketchen,  i  Pickle,  55. 

An  equity  will  attach  where  the  vendee  or  mortgagor  was,  by 
covenant  or  otherwise,  bound  to  insure  the  property  for  the  better 
security  of  the  vendor  or  creditor.  In  such  case  the  latter  would 
have,  to  the  extent  of  their  interest  in  the  property  destroyed,  an 
equitable  lien  upon  the  money  due  on  a  policy  taken  out  by  the 
mortgagor  or  vendee,  or  otlier  debtor  who  had  given  a  security  upon 
the  insured  property,  and  this  would  be  so  even  though  the  policy 
stood  in  the  name  of  the  debtor,  vendee,  or  mortgagor.  But  in  the 
absence  of  some  such  agreement  the  mortgagor,  or  vendee,  or 
grantee,  having  an  insurable  interest,  might  insure  such  interest  for 
his  own  benefit,  and  no  lien  would  attach  thereto  in  favor  of  his 
creditors  secured  by  lien  or  mortgage,  or  otherwise,  upon  the 
insured  property.  Carter  v.  Rockett,  8  Paige  (N.  Y.)  436;  Wheeler 
v.  Insurance  Co.,  loi  U.  S.  Rep.  436:  Nordyth  v.  Gery,  112  Ind.  535; 
s.  c,  2  Am.  Rep.  219;  Sheldon  on  Subrogation,  §§  233-235. 

The  agreed  state  of  facts  upon  which  this  case  is  submitted  fails 
to  show  any  covenant,  contract,  agreement,  or  understanding,  that 
Mr.  Quarles  should  insure  this  property  for  the  benefit  of  appellant. 
The  interest  of  appellant  after  the  death  of  her  husband   was  an 


BENEFICIARIES.  34I 

insurable  one;  so  v;as  the  remainder  interest  of  the  heirs.  The 
decedent  having  left  no  debts,  and  the  distributees  being  the  same 
persons  who  take  the  real  estate  as  heirs,  no  controversy  can  arise 
between  the  administrator  and  the  remaindermen.  That  the  insur- 
ance company  had  the  option  to  rebuild  is  urged  as  a  reason  why 
ih  J  insurer's  election  to  pay  instead  of  rebuild  ought  not  to  operate 
to  the  disadvantage  of  complainant.  This  option  is  one  common 
to  all  contracts  of  fire  insurance,  and  the  agreement,  if  good  in  this 
case,  would  operate  to  overturn  the  well-settled  rule  that  no  equity 
attaches  to  the  proceeds  of  a  fire  policy  in  favor  of  third  persons 
who  have  suffered  loss  in  the  absence  of  some  agreement  to  that 
effect.  If  this  option  to  pay  or  rebuild  should  be  granted  as  a  suffi- 
cient ground  to  found  an  equity  upon  in  favor  of  a  third  person  dis- 
appointed by  the  election  of  the  insurer,  the  law  of  insurance  would 
have  to  be  rewritten.  There  is  no  privity  between  appellant  and 
the  insurer,  and  no  action  of  his  can  be  ground  to  give  her  an  inter- 
est which  she  would  not  otherwise  have. 

The  decree  of  the  chancellor  will  be  affirmed. 


PEOPLE'S  STREET  RAILWAY  CO.  v.  SPENCER. 

156  Pa.  85.  — 1893. 

Action  brought  by  the  corporation  against  Spencer  to  determine 
the  rights  of  the  parties  to  certain  money  deposited  by  a  fire  insur- 
ance company  in  payment  of  a  loss  by  fire.  The  company  had  been 
the  owners  of  the  property  in  question,  and  in  consideration  of  a  pay- 
ment of  $20,000  by  Spencer,  a  conveyance  of  the  property  was  exe- 
cuted to  him  and  a  lease  back  to  the  company  at  a  nominal  rent  with 
no  change  of  possession,  which  remained  all  the  while  in  the  com- 
pany. This  arrangement  included  the  giving  by  Spencer  to  the  com- 
pany of  an  absolute  and  exclusive  option  to  repurchase  at  the  end 
of  the  year  for  the  same  sum  with  interest.  At  the  end  of  the  year 
the  company  paid  up  the  interest,  and  the  arrangement  was  renewed 
for  another  year.  During  the  continuance  of  the  agreement  the 
company  effected  an  insurance  upon  the  premises  and  paid  the 
premium.  In  the  policy  the  company  were  described  as  the  assured, 
and  there  was  inserted  therein  the  following  clause:  "  The  interest 
of  the  assured  in  the  above  described  building  is  the  right  to  pur- 
chase from  A.  D.  Spencer,  owner;  and,  in  case  of  loss,  the  insurance 
is  payable  to  him,  as  his  interest  may  appear  under  said  contract." 
The  property  was  destroyed  by  fire,  and  pending  this  action  (which 


342  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

was  instituted  as  the  result  of  an  agreement  between  the  compan^ 
and  Spencer)  the  company  exercised  the  option  to  purchase  and 
took  a  conveyance  upon  the  payment  of  the  purchase  money.' 

Mitchell,  J.  — All  the  facts  appear  in  the  writings  set  forth  ir» 
the  plaintiff's  statement.  None  of  tlie  papers  which  are  merely 
referred  to,  but  not  set  out  in  full,  seem  to  be  essential  to  the  cause 
of  action,  and  the  omission  to  give  them  in  full  is  not  therefore 
fatal.  The  affidavit  of  defense  raises  no  issue  of  fact,  for  it  denies, 
no  part  of  the  statement,  except  the  inferences  from  the  face  of  the 
papers.  The  case  was  therefore  one  for  the  court  to  decide  upon 
the  statement  and  afifidavit.  All  the  writings  constitute  parts  of  one 
transaction,  and  the  nature  of  that,  beyond  question,  was  a  convey- 
ance of  the  land  as  security  for  the  repayment  of  a  loan  of  money. 
It  starts  with  admitted  title  in  the  company  (appellee);  then  a  con- 
veyance to  appellant  for  $20,000;  a  contemporaneous  lease  from 
appellant  back  to  the  company,  at  a  nominal  rent  of  $1,  with  no 
change  of  possession,  which  remained  all  the  time  in  the  company; 
and  an  absolute  and  exclusive  option  in  favor  of  the  company  to 
repurchase  at  the  end  of  the  year  for  the  same  amount  —  $20,000  — 
with  interest;  that  is,  to  resume  its  original  title  on  payment  of  the 
loan.  At  the  end  of  the  term  the  arrangement  was  extended,  or 
renewed  for  another  year,  during  which  the  option  was  exercised  by 
the  company,  the  money  paid,  and  the  title  reconveyed  by  the 
appellant.  It  is  unimportant  what  name  we  apply  to  the  relation  of 
the  parties  during  the  year.  Whether  technically  vendor  and 
vendee,  mortgagor  and  mortgagee,  or  lessor  and  lessee,  is  imma- 
terial. The  nature  of  the  relation  is  incontestable.  Appellant  was 
the  holder  of  the  legal  title,  subject  to  an  equity  in  the  company. 
It  is  strongly  argued  for  appellant  that  his  interest  at  the  time  of 
the  fire  was  an  absolute  fee-simple  title.  But  this  is  an  error.  It 
was  not  absolute.  It  was  the  legal  title  in  fee,  but  subject  to  the 
equitable  interest  of  the  company  —  an  interest  in  the  land,  capable 
of  being  specifically  enforced,  and  good,  not  only  against  the  appel- 
lant, but  all  others,  creditors,  purchasers,  or  strangers,  to  whom  the 
recorded  deeds  and  the  company's  possession  gave  notice. 

The  only  substantial  question  in  the  case  is  the  date  at  which  the 
company's  equity  became  complete.  The  fire  took  place  during  the 
running  of  the  term.  The  option  to  redeem  was  exercised  after 
the  fire  had  occurred.  Did  the  company's  interest  begin  to  run  only 
from  the  exercise  of  its  option,  or  did  it,  upon  that  event,  relate 

'  This  abridged  statement  of  facts  is  given  by  Professor  G.  W.  Pepper  in  his 
extended  comment  on  this  case,  33  A//t.  Law  Heg.,  N.  S.  134. 


BENEFICIARIES.  343 

back  for  all  purposes  to  the  beginning  of  the  transaction?     We  are 
of  opinion  that  both  principle  and  authority  sustain  the  latter  view. 
As  already  said,  the  transaction  was  in  substance  a  loan  of  money, 
and  appellant's  right  was  to  have  his  money  back  with  interest  at  a 
specified  time,  or,  in  default  of  that,  to  have  his  title  become  abso 
lute.     The   insurance    was   for   his  protection,   not  to  increase    his 
profit;  to   keep   up   the  sufficiency   of   his   security  while   the   loan 
lasted,  or  make  good  the  value  of  his  purchase  if  it  became  absolute. 
For  that  reason  it  was  to  be  kept  up  by  the  appellee.     If  the  latter 
had   exercised   its  option  before  the  fire,  there  could  have  been  no 
question  that  the  insurance  money  would  have  belonged  to  it.     But 
the  date  of  the  fire  makes  no  substantial  difference  when,  as  was  the 
case,  the  appellee  elected   to  repay  the  loan,  and  resumed  its  title. 
On  the  happening  of  that  contingency,  the  appellant  got  his  money, 
with  interest,  which  was  all  he  was  entitled  to,   while  the  appellee 
got  back  its  land,  lessened  in  value  by  the  fire,  but  the  loss  compen- 
sated by  the  insurance  money.     The  insurance  was,  in  contemplation 
of  law,  for  the  benefit  of  whomever  should  be  entitled  when  the 
option  was  exercised  or  expired  by  default,  and,  in  fact,  it  was  con- 
tracted for  "  as  interest  may  appear."     It  stood  in  place  of  so  much 
of  the  property  as  was  destroyed  by  the  fire,  and  followed  the  title 
when  the  equitable  and  legal  interests  united.     The  authorities,  so 
far  as   we   have  any  analogous  cases,  lead   to  the  same  conclusion. 
It   was  held   in  Kerr  v.  Day,  14  Pa.  St.  112,  that  an  option  to  pur- 
chase is  a  substantial  interest  in  land,  which  may  be  conveyed  to  a 
venaee,  and   the    English  chancery  cases  were  reviewed  by  Bell,  J., 
with  the  result  that,  "  when  the  lessee  made  his  option  to  purchase, 
he    was   to    be   considered   as    the  owner  ab   initio.      Indeed,    the 
determination  can  only  be  supported  by  attributing  to  the  lessee  an 
equitable  estate  in  the  land,  under  his  covenant  for  an  optional  pur- 
chase, which  passed  to  his  alienee,  vesting  him  v.'ith  the  right  to  call 
for  a  specific  execution  on  declaring  his  election."     And  in  Frick's 
Appeal,   loi  Pa.  St.  485,  where  the  land  was  sold  upon  a  prior  judg- 
ment before  payment  or  conveyance,  it  was  held  that  the  surplus 
was  the  property  of  the  optional  vendee.     It  is  true  that  the  option 
in  that  case  had  been  exercised  before  the  levy  and  sale,  but  that 
circumstance  was  not  of  controlling  weight,  as  the  decision  was  put 
on  the  ground  that  "  in  equity  the  vendee  became  the  owner,  sub- 
ject to  the  payment  of  the  price  stipulated.      His  right  of  property 
therein  flows  from  the    contract,   and  exists   before   any  purchase 
money  may" have  been  paid;"   citing  Siter s  Appeal,  26   Pa.  St.  178. 
We  are  of  opinion   that,  upon   the  exercise  of  its  option  to  redeem, 
the  appellee's  equitable  title  reverted  back  to  the  date  of  the  original 


344  LIMITS   OF   THE   CONTRACTUAL   OIJLIGATION. 

agreement,  and  appellee  became  the  owner  of  the  land  as  it  was  at 
such  date,  or  of  the  insurance  money  which  stood  pro  tanto  in  its 
place. 

Judgment  affirmed. 


WILSON  V.  HILL. 

3  Met.  66.  —  1841. 
\^Reported  herein  at  p.   I.] 


2.  Vendor  and  Vendee. 

RAYNER  V.  PRESTON 

iS  C«.  D.  X.  —  1881. 

Appeal  from  a  judgment  of  the  master  of  the  rolls  disn'.issir'^  fno 
action.  The  plaintiffs  purchased  from  the  defendants  a  messuage 
and  workshops.  Between  the  date  of  the  contract  and  the  time 
fixed  for  completion  the  buildings  purchased  were  injurtd  by  fire. 
The  vendors  had  before  the  contract  insured  the  buildings  against 
fire,  but  there  was  not  in  the  contract  any  mention  of  chis  fact,  or 
of  the  policy.  The  plaintiffs  brought  an  action  to  establish  their 
right  to  a  sum  received  by  the  vendors  from  the  insurance  office,  or 
to  have  it  applied  in  or  toward  reinstating  the  buildings  injured. 
The  master  of  the  rolls  decided  against  their  claim,  and  from  this 
decision  the  plaintiffs  appealed. 

Brett,  L.  J. —  *  *  *  This  action  is  brought  by  the  plaintiffs 
against  the  defendants  to  recover  money  which  is  in  the  hands  of 
the  defendants;  and  therefore,  if  the  action  had  been  brought  at 
common  law,  it  would  have  been  an  action  for  money  had  and 
received.  That  action  was  always  treated  at  common  law  as  being 
founded  upon  equity,  and  therefore  it  seems  to  me  that  the  decision 
in  this  case,  whatever  it  ought  to  be,  would  be  the  same  whether  it 
should  be  considered   to  be  a  decision  at  common  law  or  in  equity. 

It  seems  to  me  that  the  question  raised  between  the  plaintiffs  and 
the  defendants  calls  upon  us  to  consider,  first  of  all,  the  nature  of  a 
policy  of  fire  insurance;  and,  secondly,  what  was  the  relation  with 
regard  to  the  policy  and  to  the  property  between  the  plaintiffs  and 
the  defendants  in  this  case.  Now,  in  my  judgment,  the  subject- 
matter  of  the  contract  of  insurance  is  money,  and  money  only.  The 
subject-matter  of  the  insurance  is  a  different  thing  from  the  subject- 
matter  of  the  contract  of  insurance.  The  subject-matter  of  insur- 
ance may  be  a  house  or  other  premises  in  a  fire  policy,  or  may  be  a 


BExVEFICIARIES.  34$ 

ship  or  goods  in  a  marine  policy  These  are  the  subject-matter 
ol  insurance,  but  the  subject-matter  of  the  contract  is  money,  and 
money  only.  The  only  result  of  the  policy,  if  an  accident  which  is 
within  the  insurance  happens,  is  a  payment  of  m.oney.  It  is  true 
that  under  certain  circumstances  in  a  fire  policy  there  may  be  an 
option  to  spend  the  money  in  rebuilding  the  premises,  but  that 
does  not  alter  the  fact  that  the  only  liability  of  the  insurance  com- 
pany is  to  pay  money.  The  contract,  therefore,  is  a  contract  with 
regard  to  the  payment  of  money,  and  it  is  a  contract  made  between 
two  persons,  and  two  persons  only,  as  a  contract. 

In  this  case  there  was  a  contract  of  insurance  made  between  the 
defendants  and  the  insurance  company.  That  contract  was  made 
by  the  defendants,  not  on  behalf  of  any  undisclosed  principal,  not 
on  behalf  of  any  one  interested  other  than  themselves.  The  con- 
tract was  made  by  the  defendants  solely  and  entirely  on  their  own 
behalf,  and  at  a  time  when  they  had  no  relation  of  any  kind  with 
the  plaintiffs.  It  was  a  personal  contract  between  the  defendants 
and  the  insurance  office,  to  which  they  were  the  sole  parties.  It  is 
true  that  under  certain  circumstances  a  policy  of  insurance  may,  in 
equity,  be  assigned,  so  as  to  give  another  person  a  right  to  sue  upon 
it;  but  in  this  case  the  policy  of  insurance,  as  a  contract,  never  was 
assigned  by  the  defendants  to  the  plaintiffs.  It  would  have  been 
assigned  by  the  defendants  to  the  plaintiffs  if  it  had  been  included 
in  the  contract  of  purchase,  but  it  was  not.  Any  valuation  of  the 
policy,  any  consideration  of  increase  of  the  price  of  the  premises  in 
consequence  of  there  being  a  policy,  was  wholly  omitted.  There 
was  nothing  given  by  the  plaintiffs  to  the  defendants  for  the  con- 
tract. The  contract,  therefore,  neither  expressly  nor  impliedly,  was 
assigned  to  the  plaintiffs;  and,  so  far  as  regards  the  contract  of 
insurance,  there  never  was  any  relation  of  any  kind  between  the 
plaintiffs  and  the  defendants. 

But  there  did  exist  a  relation  between  the  plaintiffs  and  the  defend- 
ants, not  with  regard  to  the  subject-matter  of  the  contract,  but 
with  regard  to  the  subject-matter  of  the  insurance.  There 
was  a  contract  of  purchase  and  sale  between  the  plaintiffs  and  the 
defendants  in  respect  of  the  premises  insured.  It  becomes  neces- 
sary to  consider  accurately,  as  it  seems  to  me,  and  to  state  in 
accurate  terms,  what  is  the  relation  between  the  two  people  who 
have  contracted  together  with  regard  to  premises  in  a  contract  of 
sale  and  purchase.  With  the  greatest  deference,  it  seems  wrong  to 
say  that  the  one  is  a  trustee  for  the  other.  The  contract  is  one 
which  a  court  of  equity  will  enforce  by  means  of  a  decree  for  specific 
performance.      But,  if  the  vendor  were  a  trustee  of  the  property  for 


346  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

the  vendee,  it  would  seem  to  me  to  follow  that  all  the  product,  all 
the  value  of  the  property  received  by  the  vendor  from  the  time 
of  the  making  of  the  contract,  ought,  under  all  circumstances,  to 
belong  to  the  vendee.  What  is  the  relation  between  them,  and 
what  is  the  result  of  the  contract?  Whether  there  shall  ever  be  a 
conveyance  depends  on  two  conditions;  first  of  all,  whether  the  title 
is  made  out,  and,  secondly,  whether  the  money  is  ready;  and, 
unless  those  two  things  coincide  at  the  time  when  the  contract 
ought  to  be  completed,  then  the  contract  never  will  be  completed, 
and  the  property  never  will  be  conveyed.  But  suppose  at  the  time 
when  the  contract  should  be  completed  the  title  should  be  made  out 
and  the  money  is  ready,  then  the  conveyance  takes  place.  Now  it 
has  been  suggested  that  when  that  takes  place,  or  when  a  court  of 
equity  decrees  specific  performance  of  the  contract,  and  the  convey- 
ance is  made  in  pursuance  of  that  decree,  then  by  relation  back  the 
vendor  has  been  trustee  for  the  vendee  from  the  time  of  the  making 
of  the  contract.  But  again,  with  deference,  it  appears  to  me  that  if 
that  were  so,  then  the  vendor  would  in  all  cases  be  trustee  for  the 
vendee  of  all  the  rents  which  have  accrued  due  and  which  have  been 
received  by  the  vendor  between  the  time  of  the  making  of  the  con- 
tract and  the  time  of  completion;  but  it  seems  to  me  that  that  is  not 
the  law.  Therefore,  I  venture  to  say  that  I  doubt  whether  it  is  a 
true  description  of  the  relation  between  the  parties  to  say  that  from 
the  time  of  the  making  of  the  contract,  or  at  any  time,  one  is  ever 
trustee  for  the  other.  They  are  only  parties  to  a  contract  of  sale 
and  purchase,  of  which  a  court  of  equity  will  under  certain  circum- 
stances decree  a  specific  performance.  Bat  even  if  the  vendor  was 
a  trustee  for  the  vendee,  it  does  not  seem  to  me  at  all  to  follow  that 
anything  under  the  contract  of  insurance  would  pass.  As  I  have 
said,  the  contract  of  insurance  is  a  mere  personal  contract  for  the 
payment  of  money.  It  is  not  a  contract  which  runs  with  the  land. 
If  it  were,  there  ought  to  be  a  decree  that  upon  the  completion  of 
the  purchase  the  policy  be  handed  over.  But  that  is  not  the  law. 
The  contract  of  insurance  does  not  run  with  the  land;  it  is  a  mere 
personal  contract,  and  unless  it  is  assigned  no  suit  or  action  can  be 
maintained  upon  it  except  between  the  original  parties  to  it.     *    *     -- 

I  therefore,  with  deference,  think  that  the  plaintiffs  here  cannot 
recover  from  the  defendant  on  the  ground  that  there  was  no  rela- 
tion of  any  kind  or  sort  between  the  plaintiff  and  the  defendant 
with  regard  to  the  policy,  and  therefore  none  with  regard  to  any 
money  received  under  the  policy. 

[.\n  opinion  concurring  with  that  of  Brett,  L.  J.,  was  rendered 
by  Cotton,  L.  J.] 


BENEFICIARIES.  347 

James,  L.  J.  — I  am  unable  to  concur  in  affirming  the  judgment 
of  the  master  of  the  rolls.  According  to  my  view  of  the  case  the 
plaintiff's  contention  is  founded  not  only  on  what  I  may  call 
the  natural  equity  which  commends  itself  to  the  general  sense  of 
the  lay  world  not  instructed  in  legal  principles,  but  also  on  artificial 
equity  as  it  is  understood  and  administered  in  our  system  of  juris- 
prudence. 

I  am  of  opinion  that  the  relation  between  the  parties  was  truly 
and  strictly  that  of  trustee  and  cestui  que  trust.  I  agree  that  it  is 
not  accurate  to  call  tlie  relation  between  the  vendor  and  purchaser 
of  an  estate  under  a  contract  while  the  contract  is  in  fieri  the  rela- 
tion of  trustee  and  cestui  que  trust.  But  that  is  because  it  is 
uncertain  whether  the  contract  will  or  will  not  be  performed,  and 
the  character  in  which  the  parties  stand  to  one  another  remains  in 
suspense  as  long  as  the  contract  is  /«  fieri.  But  when  the  contract 
is  performed  by  actual  conveyance,  or  performed  in  everything  but 
the  mere  formal  act  of  sealing  the  engrossed  deeds  then  that  com- 
pletion relates  back  to  the  cantract.  and  it  is  thereby  ascertained 
that  the  relation  was  throughout  that  of  trustee  and  cestui  que  trust. 
That  is  to  say,  it  is  ascertained  that  while  the  legal  estate  was  in  the 
vendor,  the  beneficial  or  equitable  interest  was  wholly  in  the  pur- 
chaser. And  that,  in  my  opinion,  is  the  correct  definition  of  a  trust 
estate.  Wherever  that  state  of  things  occurs,  whether  by  act  of 
the  parties  or  by  act  or  operation  of  law,  whether  it  is  ascertained 
from  the  first  or  after  a  period  of  suspense  and  uncertainty,  then 
there  is  a  complete  and  perfect  trust,  the  legal  owner  is  and  has 
been  a  trustee,  and  the  beneficial  owner  is  and  has  been  a  cestui 
que  trust. 

This  being  the  relation  between  the  parties,  I  hold  it  to  be  an  uni- 
versal rule  of  equity  that  any  right  which  is  vested  in  a  trustee  — 
any  benefit  which  accrues  to  a  trustee,  from  whatever  source  or 
under  whatever  circumstances,  by  reason  of  his  legal  ownership  of 
the  property  —  that  right  and  that  benefit  he  takes  as  trustee  for 
the  beneficial  owner.  If  the  policy  of  insurance  in  this  case  were  a 
collateral  contract,  such  as  the  policy  which  a  creditor  effects  on  the 
life  of  his  debtor,  the  case  would  be  wholly  different  But  the 
policy  of  fire  insurance  is  not,  in  my  opinion,  a  collateral  contract; 
it  is  not  a  wagering  contract,  a  contract  that  if  a  fire  happens  then  a 
certain  sum  of  money  shall  be  paid  to  the  insurer;  it  is  in  terms  and 
in  effect  a  contract  that,  if  the  property  is  injured,  then  the  insur- 
ance company  will  make  good  the  actual  damage  sustained  by  the 
property.  That  damage,  and  that  damage  only,  gives  the  right  and 
is  the  measure  of  the  right,  and  it  seems  to  me  impossible  to  say 


348  LIMITS    OF   THE    CONTRACTUAL    OBLIGATION. 

that  it  is  not  by  reason  of  the  legal  ownership,  and  in  respect  solely 
of  the  injury  done  to  that  legal  ownership,  that  the  right  to  recover 
from  the  insurance  company  accrued  to  the  insured.  If  the  fire  in 
this  case  had  happened  through  the  wrongful  or  negligent  act  of  a 
third  person  while  the  contract  was  ///  fieri^  the  legal  right  to  sue 
for  the  damage  would  be  in  the  vendor,  but  on  the  completion  of 
the  contract  the  purchaser  would  be  entitled  to  use  the  name  of  the 
vendor  as  his  trustee  to  sue  for  the  damage  so  sustained,  or,  if  the 
dam.igis  had  actually  been  recovered  in  the  interval,  to  recover 
the  damages  from  the  vendor.  And  it  appears  to  me  that  there  is  no 
distinction  in  principle  between  this  right  and  the  right  to  use  the 
vendor's  name  in  an  action  on  the  contract  of  indemnity  agamst 
Idss  by  fire  which  the  policy  of  insurance  is.  It  is  not,  in  my  view 
of  the  case,  at  all  material  to  consider  what  would  be  the  case  if 
after  actual  conveyance  and  during  the  currency  of  the  policy,  a  fire 
had  occurred.  The  vendor  in  that  case  would  have  no  right  as 
between  him  and  the  insurance  office,  and  the  purchaser  would  have 
no  right  of  action,  because  one  of  the  conditions  of  the  policy 
excludes  it,  and,  independently  of  that  condition,  the  policy  would 
or  might  probably  be  hsld  not  to  run  with  the  land,  in  the  hands  of 
the  subsequent  owner,  and  in  that  case  there  would  not  be  that 
which  is  the  foundation  of  the  right  —  legal  ownership  and  right  in 
one  person,  and  equitable  ownership  in  another. 

No  doubt  it  is  a  mere  accident  that  there  was  such  a  policy  and 
there  was  such  a  right.  The  vendor  could  not  have  complained  if 
there  had  been  no  insurance.  But  that  has  occurred  in  a  great 
variety  of  cases  in  which  equitable  rights  have  arisen.  Where  there 
is  a  creditor,  a  debtor,  and  a  surety,  and  the  surety  finds  out  that  by 
something  to  which  he  was  not  privy  and  of  which  he  had  never 
heard,  somebody  else  had  become  surety,  or  the  creditor  had 
obtained  security,  the  surety  has  a  right  to  obtain  contribution  from 
such  surety,  or  to  obtain  such  security,  as  the  case  may  be,  and  the 
creditor  releasing  such  surety  or  parting  with  such  security  would 
probably  find  himself  in  considerable  peril.     *     *     *  » 

'  In  Ins.  Co.  v.  Updegraff,  21  Pa.  St  513,  the  vendor,  after  contract  to  sell  and 
before  conveyance,  insured  to  the  full  value  of  the  buildings;  and  after  loss, 
which  occurred  before  conveyance,  the  vendor  Updegraff  sued  upon  the  policy 
for  the  use  of  the  vendee.  It  was  held  that  such  insurance  was  ''prima  facie 
upon  the  whole  legal  and  equitable  estate,  and  noi  upon  the  balance  of  the 
purchase  money,"  and  that  "  the  plaintiff  was  entitled  to  recover  under  a  trust, 
as  to  the  surplus,  for  the  benefit  of  the  vendee."  The  court  says-  "As  the 
vendor  is  a  trustee  for  the  vendee,  every  act  of  his  in  relation  to  the  estate  will 
be  presumed  10  be  for  the  benefit  of  the  vendee,  subjecl,  of  course,  to  the  prior 


BENEFICIARIES.  349 

Brett,  L.  J.  —  I  should  like  to  add  to  what  I  have  said  that  I  feel 
very  great  doubt  whether,  as  between  the  defendants  and  the  insur- 
ance company,  the  defendants  can  keep  the  money. 

Cotton,  L.  J   —  I  quite  concur  in  that  doubt.' 


3.  Mortgagor  and  Mortgagee. 

Harris,  J.,  in  GROSVENOR  v.  ATLANTIC  FIRE  INS.  CO. 

17  N.  Y.  391,  393.  — 1S58. 

In  this  case  the  contract  was  between  the  defendants  and  McCarty. 
The  agreement  was  to  insure  Eugene  W.  McCarty  against  loss  or 
damage  by  fire,  to  the  amount  of  $7,000,  on  his  three  story  biick 
■dwelling-house.  But  after  the  contract  was  made,  and  before  the 
alleged  loss,  McCarty  had  sold  and  conveyed  the  property  insured. 
At  the  time  of  the  fire  he  had  no  insurable  interest;  of  course,  he 
has  no  claim  for  indemnity.  No  action,  therefore,  could  be  main- 
tained upon  the  policy  by  McCarty.  But  at  the  time  the  insurance 
was  effected  the  plaintiff  in  this  action,  Grosvenor,  was  the  holder  of 
a  mortgage  upon  the  premises  insured.  As  such  mortgagee,  he, 
too,  had  an  insurable  interest.  The  extent  of  that  interest  was  the 
amount  of  his  debt.  To  that  extent  he  might  have  contracted  with 
the  defendants  to  indemnify  him  against  loss  by  fire.  The  payment 
of  his  debt  would  as  completely  terminate  the  contract  to  insure  as 
would  the  alienation  of  the  property,  when  the  contract  is  made 
with  the  owner.  The  important  inquiry  in  this  case  is,  to  which  of 
these  classes  does  the  contract  in  question  belong?  The  action  is 
brought  by  the  plaintiff  as  mortgagee.  The  contract  was  made  with 
McCarty,  the  mortgagor.  But  the  policy  provides  that  in  case  of 
loss  .such  loss  should  be  payable  to  the  plaintiff.  What  is  the  legal 
effect  of  this  provision?  Without  it  the  plaintiff  could  have  had  no 
claim  against  the  defendants  for  indemnity.  Is  this  provision  to  be 
regarded  as  an  appointment  of  the  plaintiff  to  receive  any  money 
which   might   become  due  from   the   insurers  by  reason  of  any  loss 

claims  of  the  vendor  himself.  This  is  reasonable  because  as  the  vendee  must 
suffer  the  losses  which  may  happen  to  the  properly;  it  is  just  that  he  should 
have  ihe  advantages  of  any  benefits  which  accrue  to  it;  and  next  to  the  security 
of  his  own  interest  a  trustee  will  be  presumed  to  have  in  view  the  interest  of  the 
cestui  que  trust." 

'  In  Castellain  v.  Prcstou.  II  O.  B.  D.  380,  Castellain,  representini^  the  above 
insurance  companv,  brought  an  action  againM  the  abov'e  defendant  in  respect 
of  the  money  paid,  and  he  was  allowed  to  recover  it.     See/t^jY  p.  536. 


350  LIMITS    OF   THE    CONTRACTUAL    OBLIGATION. 

sustained  by  the  mortgagor,  or  has  it  the  effect  to  render  the  policy 
which  would  otherwise  be  a  contract  to  indemnify  the  mortgagor 
against  a  loss,  a  contract  to  indemnify  the  mortgagee?  A  determin- 
ation of  this  question  will  also  determine  the  rights  of  the  parties  to 
this  action.     *     *     * 

The  undertaking  to  pay  the  plaintiff  was  an  undertaking  collateral 
to  and  dependent  upon  the  principal  undertaking  to  insure  the  mort- 
gagor. The  effect  of  it  was  that  the  defendants  agreed  that  when 
ever  any  money  should  become  due  to  the  mortgagor  upon  the  con- 
tract of  insurance,  they  would,  instead  of  paying  it  to  the  mortgagor 
himself,  pay  it  to  the  plaintiff.  The  mortgagor  must  sustain  a  loss 
for  which  the  insurers  were  liable,  before  the  party  appointed  to 
receive  the  money  would  have  a  right  to  claim  it.  It  is  the  damage 
sustained  by  the  party  insured,  and  not  by  the  party  appointed  to 
receive  payment,  that  is  recoverable  from  the  insurers.  Macomber 
V.  The  Cambridge  Mutual  Fire  Ins.  Co.,  8  Cush.,  133.  The  insur- 
ance being  upon  the  interest  of  the  mortgagor,  and  he  having  parted 
with  that  interest  before  the  fire,  no  loss  was  sustained  by  him,  and, 
of  course,  none  was  recoverable  by  his  assignee  or  appointee.  The 
right  of  such  a  party  being  wholly  derivative,  cannot  exceed  the 
right  of  the  party  under  whom  he  claims.  Carpenter  v.  The  Provi- 
dence Washington  Ins.  Co..,  16  Peters,  495  ;  Foster  v.  The  Equitable  Fire 
Ins.  Co.,  2  Gray,  216, 


HASTINGS  ET  AL.,  Executors  v.  WESTCHESTER  FIRE 
INSURANCE   CO. 

73  N.  Y.  141.  — 1878. 

The  plaintiffs,  as  the  surviving  trustees  and  executors  of  the  will 
of  George  Hastings,  deceased,  were  on  the  8th  day  of  May,  A.  D. 
1875,  the  owners  of  a  bond  and  mortgage  executed  by  Sarah  C. 
Stout  and  Thomas  H.  Stout,  her  husband,  for  the  sum  of  $14,000; 
the  mortgage  covering  premises  in  the  village  of  Irvington,  West- 
chester county.  New  York.  Defendant,  on  said  8th  day  of  May, 
1875,  issued  to  Mrs.  Stout  its  policy  of  insurance  for  the  sum  of 
$10,000,  for  a  term  of  three  years,  on  her  dwelling-house,  upon  said 
mortgaged  premises,  which  policy  contains  this  clause:  "  Other 
insurance  permitted."  Also  the  following  condition  numbered 
nine:  "  In  case  of  any  other  insurance  upon  the  property  hereby 
insured,  whether  made  prior  or  subsequent  to  the  date  of  this 
policy,  the  assured  shall  be  entitled  to  recover  of  this  company  no 
greater  proportion  of  the  loss  sustained  than  the  sum  hereby  insured 


BENEFICIARIES.  35 1 

bears  to  the  whole  amount  insured  thereon,  whether  such  other 
insurance  be  by  specific  or  by  general  or  by  floating  policies."  On 
September  i,  1876,  with  the  consent  of  Mrs.  Stout,  and  at  the 
request  of  the  plaintiffs,  the  defendant  indorsed  upon  said  policy 
the  following  words:  "  Loss,  if  any,  payable  to  Maria  L.  and  East- 
burn  Hastings,  trustees  and  mortgagees,"  and  at  the  same  time 
annexed  to  said  policy  the  following  clause,  known  as  the  "  mort- 
gage clause:  "  "  It  is  hereby  specially  agreed  that  this  insurance, 
as  to  the  interest  of  the  mortgagee  only  therein,  shall  not  be  invali- 
dated by  any  act  or  neglect  of  the  mortgagor  or  owner  of  the  property 
insured,  nor  by  the  occupation  of  the  premises  for  purposes  more 
hazardous  than  are  permitted  by  this  policy.  It  is  also  provided 
and  agreed  that  the  mortgagee  shall  notify  the  company  of  any 
change  of  ownership  or  increase  of  hazard  not  permitted  by  this 
policy  to  the  mortgagor  or  owner  as  soon  as  the  same  shall  come  to 
his  or  her  knowledge,  and  shall,  on  reasonable  demand,  pay  the 
additional  charge  for  the  same,  according  to  the  established  scale  of 
rates,  for  the  time  such  increased  hazard  may  be  or  shall  have  been 
assumed  by  this  company,  during  the  continuance  of  this  insurance. 
And  it  is  further  agreed  that  whenever  the  company  shall  pay  the 
mortgagee  any  sum  for  loss  under  this  policy,  and  shall  claim  that, 
as  to  the  mortgagor  or  owner,  no  liability  therefor  existed,  said 
company  shall  at  once  be  legally  subrogated  to  all  the  rights  of  the 
mortgagee  under  all  the  securities  held  as  collateral  to  the  mortgage 
debt,  to  the  extent  of  such  payment,  but  such  subrogation  shall  not 
impair  the  right  of  the  mortgagee  to  recover  the  full  amount  of  his 
claim,  or  at  its  option  said  company  may  pay  to  the  mortgagee  the 
wliole  principal  due  or  to  grow  due  on  the  mortgage,  with  the  inter- 
est then  accrued,  and  shall  thereupon  receive  a  full  assignment  and 
transfer  of  the  mortgage,  and  all  other  securities  held  as  collateral 
to  the  mortgage  debt. 

GEO.   R.  CRAWFORD, 

Secretary.'" 

The  policy  was  thereupon  delivered  to  the  plaintiffs.  On  the  20th 
day  of  October,  1876,  said  dwelling  was  destroyed  by  fire.  Due 
notice  of  the  loss  was  given,  and  proof  of  loss,  as  required  by  said 
policy,  was  made  and  delivered  to  said  defendant  on  the  14th  day  of 
November,  1876,  and  arbitrators  were  on  the  nth  day  of  December, 
1876,  chosen  to  adjust  the  amount  of  loss,  difference  having  arisen  as 
to  amount  of  such  loss.  On  the  i8th  day  of  January,  1877,  the  amount 
of  the  loss  and  damages  was  adjusted  at  $9,832.52.  At  the  time  of 
t'le   issuing  of   the  said    policy,   and   of   the  indorsements  and   the 


35^  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

delivery  of  the  same  to  the  plaintiff,  said  Sarah  C.  Stout  had 
obtained  another  polic)'  of  insurance  upon  the  property  in  the 
amount  of  $4,000,  issued  by  the  Lycoming  Insurance  Company, 
containing  a  clause  as  to  the  contribution  in  case  of  other  insurance, 
the  same  as  the  one  issued  by  the  defendant,  but  the  fact  of  such 
insurance  was  not  known  to  either  the  plaintiffs  or  defendant  until 
after  the  said  fire,  and  t|;ie  said  policy  was  not  payable  to  plaintiffs. 
The  amount  of  the  loss  as  adjusted,  together  with  the  value  of  the 
land  covered  by  the  mortgage,  would  not  more  than  pay  the  plain- 
tiffs the  amount  of  their  mortgage,  and  upon  a  foreclosure  would 
not  realize  that  amount.  The  plaintiffs  claimed  the  whole  amount 
of  said  loss  as  adjusted,  $9,832.52,  with  interest  thereon  from  Janu- 
ary 14,  1877,  said  date  being  sixty  days  after  proof  of  loss,  was 
delivered  to  the  defendant.  Defendant  claimed  that  by  reason  of 
the  insurance  in  the  Lycominj  Insurance  Company  it  was  only  lia- 
ble for  ten-fourteenths  of  the  loss;  also,  that  under  its  policy  the 
amount  due  was  not  payable  until  sixty  days  after  the  adjustment  of 
the  loss.     The  General  Term  sustained  plaintiffs'  claims. 

Rapallo,  J.  — By  the  terms  of  the  mortgage  clause  attached  to 
the  policy  the  defendant  agreed  that  the  insurance,  as  to  the  inter- 
est of  the  mortgagee  only,  should  not  be  invalidated  by  any  act  or 
neglect  of  the  mortgagor  or  owner  of  the  property  insured,  nor  by 
the  occupation  of  the  premises  for  purposes  more  hazardous  than 
were  permitted  by  the  policy.  But  it  was  further  agreed,  in  sub- 
stance, that  if  the  defendant  should  pay  the  mortgagee  any  loss,  for 
which  it  would  not  be  liable  to  the  mortgagor,  it  should  be  subro- 
gated to  the  rights  of  the  mortgagee  under  all  securities  for  the 
mortgage  debt,  or  it  might  pay  the  amount  due  on  the  mortgage 
and  take  an  assignment  thereof.     *     *     * 

I  think  the  intent  of  the  clause  was  to  make  the  policy  operate  as 
an  insurance  of  the  mortgagors  and  the  mortgagees  separately,  and 
to  give  the  mortgagees  the  same  benefit  as  if  they  had  taken  out  a 
separate  policy  free  from  the  conditions  imposed  upon  the  owners, 
making  the  mortgagees  responsible  only  for  their  own  acts.  It 
established  a  privity  between  the  company  and  the  mortgagees,  and 
provided  that,  notwithstanding  that  the  insurance  might  be  invali- 
dated as  to  the  mortgagors,  it  should,  nevertheless,  protect  the 
mortgagees;  and,  as  a  consideration  for  this  undertaking,  it  was 
stipulated  that,  in  case  the  company  should  be  called  upon  to  pay 
the  mortgagees,  under  circumstances  which  discharged  it  from  lia- 
bility to  the  mortgagors,  it  should  be  indemnified  by  subrogation, 
or  an  assignment  of  the  mortgage  and  all  securities  held  by  the 
mortgagees  for  the  mortgaged  debt.     This  provision,  in  case  the 


BENEFICIARIES.  353 

policy  were  invalidated  as  to  the  mortgagors,  made  it,  in  substance, 
an  insurance  solely  of  the  interest  of  the  mortgagees,  by  direct  con- 
tract with  them,  unaffected  by  any  questions  which  might  exist 
between  the  company  and  the  mortgagors.  The  same  consequences 
would  follow,//-^  tanto,  from  a  partial,  as  from  an  entire  invalidation, 
or  a  reduction  of  the  policy  as  Lo  tlie  mortgagors. 

There  having  been  in  the  present  case  no  additional  insurance 
upon  the  interest  of  the  mortgagees,  which  should  reduce  their  claim 
to  one  for  contribution,  I  do  not  think  they  are  affected  by  the 
additional  insurance  on  the  interest  of  the  mortgagors,  even  though 
it  existed  at  the  time  of  the  issuing  of  the  policy  now  in  question, 
the  mortgagees  having  been  ignorant  of,  and  having  no  interest  in, 
such  additional  insurance.  For  whatever  amount  the  defendant 
may  have  to  pay  the  plaintiffs  in  excess  of  the  sum  which  the  mort- 
gagors could  have  collected  on  the  policy,  were  there  no  mortgage, 
the  company  is  entitled  to  reimbursement,  by  enforcing  the  bond 
and  the  mortgage,  to  which  it  is  entitled  by  subrogation  to  that 
extent;  or  it  may  pay  them  and  take  an  assignment,  in  which  case 
it  would  be  bound  to  give  credit  thereon,  only  for  its  contributive 
share  of  the  loss  for  which  it  is  liable  in  respect  of  the  interest  of 
the  mortgagors.  If  the  security  is  insufificient  to  make  the  defend- 
ant whole  for  its  excessive  payment,  that  is  no  answer  to  the  claim 
of  the  plaintiffs;  it  is  a  loss  resulting  from  the  contract  of  the 
defendant  with  the  mortgagee. 

The  mortgagors  derive  no  benefit  from  the  sum  paid  by  the 
defendant  in  excess  of  its  contributive  proportion.  The  mortgage 
debt  is  not  reduced  by  that  payment,  but  only  to  the  extent  of  the 
contributive  share  for  which  the  policy  stood  for  the  benefit  of  the 
mortgagors.  The  mortgagors  remain  liable  on  their  bond  for 
the  amount  payable  thereon  beyond  this  contributive  share,  in  case 
the  company  takes  an  assignment.  If  the  mortgaged  premises 
should,  on  a  foreclosure,  prove  insufificient  to  pay  this  excess,  the 
mortgagors  will  be  liable  for  the  deficiency.  They  have  their  claim 
against  the  Lycoming  Insurance  Company  for  its  contributive  share 
of  the  loss  which  is  identical  in  amount  with  the  excess  which  the 
defendant  is  obliged  to  pay  to  the  mortgagees.  The  Lvcoming 
Insurance  Company  can  claim  no  benefit  from  the  payment  by  the 
defendant  to  the  mortgagees.  Whether  the  defendant  can,  for  itr- 
indemnity,  have  any  recourse  against  the  proceeds  of  the  policy  in 
the  Lycoming  Company  is  a  question  not  involved  in  the  present 
case.  The  only  question  here  is  whether  it  can  set  up  that  insur- 
ance as  against  the  claim  of  the  mortgagees. 

For   the    reasons    stated     I    concur    in    the    conclusion    of    my 

LAW    OF    INSURANCE —  23 


354  LIMITS   OF   THE   CONTRACTUAL   OBLIGAITON. 

leurned  brother  xMiller,  J.,'     *     *     *     that  the  judgment  should  t^t 
aflfirmed. 

All  concur  for  affirmance,  except  Allen,   Folger  and  AxDREAVi., 

JJ.,  dissenting. 

Judgment  affirmed. 


Stone,  C.  J.,  in  FIRE  INSURANCE  COMPANIES  v. 
FELRATH. 

77  Ala.  194.  —  1884. 

Can  Felrath  maintain  these  actions  in  his  own  name?  We  think 
not  for  the  following  reasons:  The  policies  were  taken  out  in  the 
name  and  in  favor  of  James  Clark,  who  owned  the  property.  The 
gross  sum  of  the  policies  was  $1,550.  Felrath  had  a  mortgage  on 
the  property,  but  the  policies  were  neither  assigned  nor  trans- 
ferred to  him  so  as  to  constitute  them  his  property,  nor  to  make 
him,  Felrath,  the  party  assured.  The  only  interest  Felrath  had  is 
shown  on  the  face  of  the  policies  themselves  and  is  expressed  in 
this  language :  ' '  Loss  if  any  payable  to  Joseph  Felrath,  to  the  extent 
of  his  mortgage.'"   *    *    * 

It  is  contended  for  appellee  that  Felrath  can  maintain  these  actions 
under  section  2890  of  the  Code  of  1876,  which  provides  that  actions 
on  contracts  express  or  implied  for  the  payment  of  money,  must  be 
prosecuted  in  the  name  of  the  party  really  interested,  whether  he 
has  the  legal  title  or  not.  This  would  undoubtedly  be  the  case  if 
by  the  terms  of  the  policy  or  assignment  pursuant  to  its  terms,  the 
entire  sum  of  the  insurance  money  had  been  made  payable  to  Fel- 
rath. Appleton  Iron  Co.  v.  Br.  Amer.  Assur.  Co.,  46  Wis.  23;  Keeler 
V.  Niagara  Falls  Fire  Ins.  Co.,  16  Wis.  523.  We  hold  however  that 
the  right  of  action  on  this  contract  must  be  determined  by  the  status 
of  the  transaction  which  the  parties  by  their  contract  have  fixed 
upon  it.  It  is  the  contract  itself  and  not  any  after  occurring  acci- 
dent which  determines  the  intention  the  parties  had.  They  ap- 
pointed the  payment  of  part  of  the  money  to  Felrath  in  case  of  loss. 
They  did  not  appoint  the  payment  of  the  entire  sum  nor  were  the 
policies  assigned.  They  did  not  confer  on  Felrath  a  right  to  sue 
for  a  part  and  on  Clark  the  right  to  sue  for  the  residue.  That 
would  have  been  to  split  one  contract  into  two  causes  of  action 
which  can  only  be  done  by  agreement  of  debtor  and  creditor  having 
that  object  in  view.     It  was  not  done  in  this  case;  and  the  accident 

'  The  opinion  of  the  court  was  written  by  Miller,  J.,  but  the  briefer  opinion 
bv  Rapallo,  J.,  has  been  chosen  for  publication  here. 


BENEFICIARIES.  355 

that  the  loss  was  only  partial,  and  ditl  not  exceed  the  sum  appointed 
to  be  paid  to  Felrath,  can  neither  change  the  contract  relations  of 
the  parties  nor  affect  an  assignment  of  the  policies.  There  are  a 
few  cases  which  it  is  contended  hold  the  contrary  of  these  viev.'s, 
but  if  they  do  we  decline  to  follow  them.  N.  JF.  Mut.  Life  Ins. 
Co.  V.  Ger mania  Fire  Ins.  Co..^  40  Wis.  446;  Hammel  v.  Queen  Ins. 
Co.,  50  Wis.  240;  s.  c,  41  Am.  Rep.  i;  State  Ins.  Co.  v.  Maackens, 
38  N.  J.  Law,  564.  In  some  of  these  cases  the  appointee's  claim 
equalled  or  exceeded  the  whole  sum  insured,  which  of  course 
involved  no  splitting  up  of  the  cause  of  action.  This  distinguishes 
such  cases  from  this.  IVatertozvn  Fire  Ins.  Co.  v.  Seiuing  Machine 
Co.,  41  Mich.    131. 

MILLER  V.  ALDRICH. 

31  Mich.  408.  —  1875. 

CooLEY,  J. — The  following  facts  we  think  are  established  by  the 
evidence  in  this  case:  Miller,  the  complainant,  on  the  eighth  day 
of  August,  187 1,  became  surety  for  Alpheus  O.  Chapman,  on  a  note 
for  three  hundred  dollars  to  Edward  Paine,  payable  in  two  years 
from  date  with  ten  per  cent,  interest.  To  secure  him  for  doing  so, 
Chapman  orally  agreed  to  give  him  a  mortgage  on  a  certain  house 
and  lot,  and  as  the  lot  without  the  house  was  of  little  value,  he  also 
agreed  to  keep  the  house  insured  for  Miller's  benefit.  This  agree- 
ment was  earned  into  effect  so  far  as  the  giving  of  the  mortgage 
was  concerned,  and  a  policy  of  insurance  was  also  taken  out  for 
the  sum  of  one  thousand  dollars,  loss  if  any  payable  to  Miller  to  the 
extent  of  his  interest,  but  terminating  August  19th,  1872.  On  the 
fourteenth  day  of  March,  1872,  Chapman  sold  the  mortgaged  prem- 
ises to  the  defendant  Aldrich,  subject  to  this  mortgage,  and  on  an 
oral  understanding  that  Aldrich  should  perform  its  condition. 
Instead,  however,  of  having  the  insurance  policy  assigned  to 
Aldrich,  it  was  surrendered,  and  a  new  one  taken  out  in  the  name 
of  Aldrich,  and  without  providing  in  terms  for  the  protection  of 
Miller.  This  insurance  was  for  eight  hundred  dollars,  which  was 
quite  as  much  as  the  value  of  the  building  would  justify.  Miller, 
when  he  was  informed  what  had  been  done,  called  upon  Aldrich,  and 
expressed  apprehension  about  his  security,  but  Aldrich  quieted  him 
by  assuring  him  that  in  event  of  loss  he  should  be  protected  by  the 
insurance  money.  The  building  was  actually  destroyed  by  fire  in 
the  December  following,  and  the  loss  has  been  adjusted  and  is 
ready  to  be  paid  over,  but  Aldrich  now  refuses  to  apply  any  portion 
of  the  money  to  the  protection  of  Miller.     The  purpose  of  this  suit 


356  LIMITS   OF   THE   CONTRACTUAL   OBLICATION. 

is  to  compel  the  application,  and  the  Circuit  Court  has  decreed  that 
the  insurance  moneys,  to  the  amount  of  the  Paine  note,  shall  be 
paid  into  court  to  be  paid  over  to  Miller  on  his  discharging  his 
mortgage. 

In  the  main  we  think  the  decree  correct.  Though  Chapman  may 
have  a  legal  right  to  surrender  the  policy  he  had  taken  out  for 
Miller's  protection,  he  had  no  equitable  right  to  do  so;  and  as 
Aldrich  knew  all  the  facts,  and  took  his  new  policy  on  a  wrongful 
surrender  of  the  one  which  protected  Miller,  and  for  a  sum  which 
precluded  Miller  from  insuring  on  his  own  behalf,  we  think  Miller 
must  be  held  to  have  an  equitable  interest  in  the  new  policy  to  the 
extent  of  his  lien,  whether  Aldrich  did  or  did  not  expressly  agree 
with  Chapman  that  such  should  be  the  case,  as  the  latter  says  he 
did.  The  case  is  within  the  principle  of  Crom-cvell  v.  Brooklyn  Ins. 
Co.,  44  N.  Y.  42,  and  it  is  not  important  whether  Chapman  had  or 
had  not  legally  bound  himself  to  Miller  to  keep  up  insurance  for  his 
benefit,  when  by  virtue  of  the  oral  understanding  he  had  actually 
executed  such  insurance. 

It  is  objected  that  Chapman  should  have  been  made  a  party  to 
the  suit,  but  we  discover  no  necessity  for  it.  The  decree  will  inci- 
dentally protect  him,  and  he  might  doubtless  have  been  joined;  but 
complete  justice  is  done  to  all  parties  concerned,  when  complainant 
obtains  the  relief  prayed  for.  Complainant's  case  is,  that  Chapman 
is  wholly  insolvent,  so  that  the  complainant  has  no  resource  but  this 
insurance  money  for  his  indemnity;  and  defendant  certainly  has  no 
interest  in  having  Chapman  made  a  party,  as  in  no  contingency 
could  he  be  entitled  to  any  relief  as  against  Chapman,  and  his  satis- 
faction of  complainant's  equity  will  at  the  same  time  satisfy  any 
equity  of  Chapman  based  on  his  oral  promise  to  pay  off  this  claim. 

It  is  also  objected  that  the  decree  is  erroneous,  inasmuch  as  it 
provides  that  insurance  money  to  the  amount  of  the  Paine  note 
shall  be  paid  to  complainant  when  the  mortgage  is  discharged, 
though  this  may  be  done  leaving  the  note  outstanding.  This  was 
probably  an  inadvertence  in  drafting  the  decree,  and  the  decree 
should  be  so  modified  as  to  make  the  payment  of  the  insurance 
money  secure  the  surrender  or  satisfaction  of  the  note,  together  with 
satisfaction  of  the  mortgage.  We  cannot  say  that  the  error  was 
immaterial  to  Aldrich,  as,  under  the  agreement  between  Chapman 
and  himself  when  the  sale  took  place,  the  former  would  doubtless 
have  a  lien  on  the  land  for  his  protection  in  case  the  note  was  not 
met  when  due  and  should  be  taken  up  by  himself.  Under  the  cir- 
cumstances, while  modifying  the  decree  as  suggested,  and  affirming 
it  in  all  other  respects,  no  costs  will  be  awarded  in  this  court. 


IIENEFICIARIES.  357 

Walker,  J.,  in  NORWICH  FIRE  INS.  CO.  z'.  BOOMER. 

52  III.  442,  446.  —  1869. 

It  is  again  urged  that,  inasmuch  as  the  mortgagors  paid  the  debt 
to  appellee  [mortgagee]  before  the  recovery  in  the  court  below,  and 
the  mortgagee  has  sustained  no  loss,  he  is  not  entitled  to  recover. 
Had  appellants  paid  this  loss  before  the  mortgagors  paid  the  debt 
to  appellee,  then  the  question  of  their  right  to  subrogation  would 
have  been  presented  for  consideration;  but,  inasmuch  as  appellants 
had  not  done  so,  the  questions  presented  are  of  a  different  char- 
acter. Had  appellee  applied  for  the  policy,  paid  the  premium,  and 
effected  the  insurance,  and  on  the  occurrence  of  this  fire  appellants 
had  paid  the  loss,  they  would  no  doubt  have  been  entitled  to  subro- 
gation, by  an  assignment  of  the  mortgage.  In  such  a  case,  the 
insurance  would  be  considered  as  a  further  security  of  the  debt, 
and  on  the  familiar  principle  that  a  surety  who  pays  the  debt  may 
resort  to  the  principal  debtor  for  payment;  in  such  a  case  the 
insurer  might,  no  doubt,  resort  to  the  mortgagor  for  payment. 

But  in  this  case  the  mortgagors  paid  the  premium,  and  obtained 
the  policy,  in  pursuance  to  an  agreement  with  the  mortgagee  before 
it  was  effected.  The  mortgagors  procured  it  as  a  part  of  the  secur- 
ity they  agreed  to  give  appellee  for  the  debt  they  owed  him.  It 
was,  then,  in  equity,  their  policy,  and  not  appellee's,  although  in  his 
name.  Had  the  mortgagors  paid  the  premium,  and  obtained  the 
policy  in  their  names,  the  question  could  not  have  arisen.  Then  why, 
when  they,  in  pursuance  of  their  agreement,  pay  the  premium,  should 
they  not  be  regarded  as  the  beneficial  assured,  when  they  shall  have 
paid  the  debt  and  released  the  property?  In  such  a  case  they  seem  to 
have  strong  equitable,  as  well  as  legal,  claims  to  pay  for  the  loss, 
and  should  be  permitted  to  use  the  name  of  the  mortgagee  to 
recover.  Had  they  taken  this  policy  in  their  own  names,  with  the 
OSS  payable  to  appellee,  according  to  his  interest,  and  they  had! 
subsequently  paid  the  debt,  no  one,  we  presume,  would  question 
their  right  to  sue  in  the  name  of  the  mortgagee,  and  recover  for 
their  own  use.  We  understand  it  to  be  the  settled  law  that,  when 
the  mortgagor  or  pledgor  insures  the  property,  and  a  loss  occurs, 
he  may  recover  because  he  has  an  insurable  interest  in  the  property, 
and  reason  and  justice  require  that  when  he  pays  the  premium, 
although  he  insures  in  the  name  of  the  incumbrancer,  and  he  after- 
wards pays  the  debt,  he  should  be  permitted  to  recover  for  loss  to 
the  property.  And  this  rule  is  supported  by  the  authorities.  King 
V.  The  State  Mutual  Fire  Insurance  Co.,  7  Cush.  i;  Concord  Union 
Mutual  Fire  Insurance   Co.  v.  Woodbury,  45    Me.    447  ;  Kernochan  v 


358  LIMITS   OF   THE   CONTRACTUAL   OHLIGATION. 

The  Neii.'  York ^  Fire  l/isu ranee  Co.,  17  N.  V.  R.  42S.  The  first  of 
these  cases,  however,  goes  further,  and  holds  that  the  mortgagee 
may  insure,  and,  in  case  of  loss,  may  collect  his  debt  and  recover  on 
the  policy;  and  the  insurer  has  no  right  to  subrogation.  But  these 
latter  propositions  are  not  in  harmony  with  the  current  of  the 
authorities,  but  the  opinion  sustains  the  rule  we  have  announced. 


Amount  of  Mortgagee's  Recoverv.  —  "It  is  not  a  defense  to 
the  insurer  that  the  debtor  is  solvent  and  that  the  insured  may  make 
good  his  personal  claim  against  him.  The  insured  is  not  bound  to 
e.xhaust  his  remedies  against  third  parties  before  claiming  indem- 
nity from  his  insurer.  Collingridge  v.  Royal  Exch.  Asso.,  3  Q.  B.  D. 
173;  Haneoxv.  Fishing  Ins.  Co.,  3  Sumner,  132.  It  has  not  been  de- 
cided in  this  country  [England]  whether  it  is  a  valid  defense  that 
the  security,  although  diminished  in  value  by  the  fire,  is  still  suf- 
ficient to  cover  the  mortgage  debt,  and  the  American  authorities 
upon  the  question  are  not  unanimous.  In  the  leading  case  the 
defense  was  rejected,  and  it  was  held  that  a  mortgagee  who  has 
insured  his  separate  interest  is  entitled,  upon  assigning  his  mort- 
gage to  his  insurer,  to  claim  the  full  amount  insured  wherever 
the  security  has  been  materially  damaged  by  fire.  The  ground  of 
judgment  was  that  the  insured  is  not  bound  to  resort  elsewhere  than 
to  his  policy  for  indemnity,  and  that  this  principle,  recognized  as 
regards  the  mortgagee's  personal  claim  against  the  debtor,  is  equally 
applicable  to  his  remedy  upon  the  mortgaged  property.  Excelsior 
Fire  Ins.  Co.  v.  Royal  Ins.  Co.  of  Liverpool,  (55  N.  Y.  343),  14  Am. 
R.  271,  where  all  the  authorities  are  reviewed,  pp.  279,  283.  The 
competing  theory  is  that  a  mortgagee  insures  not  the  ultimate 
safety  of  the  whole  property,  but  its  capacity  to  pay  the  mortgage 
debt,  and  that  he  can  only  claim  under  his  policy  the  balance  of  his 
debt  which  his  security  remaining  after  the  fire  is  insufificient  to 
cover.  As  a  consequence  of  this  view  it  was  held  that,  where 
insurance  is  effected  by  a  mortgagee  upon  his  special  interest,  the 
existence  of  prior  incumbrances  is  material  to  the  risk  and  must  be 
disclosed.  Smith  v.  Columbia  Ins.  Co.,  (17  Pa.  St.  256),  55  Am.  D. 
546;  Carpenter  v.  Prov.  Ins.  Co.,  16  Peters,  495;  2  Am.  L.  Cas.  865. 
The  two  theories  may  be  illustrated  by  the  following  case.  Sup- 
pose that  property  of  the  value  of  ;^i,ooo  is  mortgaged  to  A  for 
^500  and  to  B  for  ^500,  and  that  A  and  B  insure  in  respect  of 
their  mortgage  interests  to  the  full  amount  of  their  debts.  Suppose 
that  the  security  is  injured  by  fire  to  the  extent  of  ^500.  If  A's 
mortgage  be  prior  to  B's,  A's  insurer  upon  the  theory  last  exphined 


BENEFICIARIES.  359 

would  not  be  liable  to  him,  because  the  value  of  the  security  is  still 
sufficient,  if  realized,  to  pay  his  debt.  B's  insurer  upon  the  same 
theory  would  be  liable  to  him  for  ^500  because  his  debt  is  wholly 
uncovered.  On  the  first  theory  A  and  B  would  each  be  entitled  to 
c'aim  the  whole  sums  insured,  because  A's  security  is  less  valuable 
;; /  its  margin  of  ^500  than  it  was  before  the  fire,  while  B's  debt  is, 
as  before,  entirely  uncovered,  A's  insurer  having  been  subrogated 
to  A's  preferable  rights  upon  the  security.  Upon  either  theory  the 
acutal  loss  of  ^500  is  ultimately  made  good  by  the  insurer  of  the 
postponed  creditor."  —  Wm.  Harvey  on  "Insurance  of  Limited 
Interests,"  in  10  Law  Quar.  Rev.  48.' 


b.  Life  Insurance. 

I.  Who  May  be  a  Beneficiary. 

LANGDON  V.  UNION  MUTUAL  LIFE  INS.  CO. 

14  Fed.  272  (Circuit  Ct.  E.  D.  Mich.)—  1882. 

This  was  an  action  upon  a  policy  of  life  insurance  upon  the  life 
of  Augustus  E.  Baker,  "  for  the  sole  and  separate  use  and  benefit 
of  his  brother-in-law,  William  W.  Langdon.  But  in  case  of  his 
previous  death  to  revert  to  the  insured."  The  facts  in  relation  to 
this  policy  were  substantially  as  follows:  The  agent  of  the  defend- 
ant solicited  Langdon,  the  plaintiff,  to  insure  his  life  in  his  com- 
pany. Tnis  application  plaintiff  declined,  but  said  to  the  agent 
that  he  might  go  to  his  brother-in-law,  Baker,  and  get  him  to  make 

■  Professor  McClain,  in  an  article  on  "  Insurance  of  Limited  Interests,"  (11 
Har.  L.  Rev.  512),  concludes  that  "  Briefly,  the  obligation  to  make  indem- 
nity may  be  indicated  as  follows:  i.  Fire  insurance  is  a  contract  of  indemnity 
against  damages  to  the  insured  by  reason  of  loss  or  injury  to  the  property  by 
fire.  2.  The  recovery  for  a  loss  should  not  exceed  the  damage,  certain  or  con- 
tingent, which  insured  has  suffered,  or  may  suffer,  by  reason  of  the  loss.  3.  If 
the  interest  of  the  insured  is  that  of  ultimate  owner,  with  a  limitation  in  the 
nature  of  a  lien  to  secure  his  indebtedness,  he  is  entitled  to  full  indemnity  for 
loss  of,  or  injury  to,  the  property  to  the  extent  of  the  insurance,  for  the  loss  falls 
upon  him.  If  his  interest  is  that  of  a  lienholder,  his  recovery  should  be  for  the 
amount  of  his  lien.  4.  In  case  of  a  lien-holder,  bailee,  or  other  person  having 
a  contingent  or  temporary  interest,  the  doctrine  of  indemnity  leads  to  subroga- 
rion,  and  perhaps  to  a  right  to  recover  from  insured  any  amount  paid  beyond 
the  damage  which  subsequently  appears  to  have  been  suffered.  5.  The  right  of 
subrogation  is  not  a  primary  right  of  insurer,  but  arises  only  as  between  himself 
and  insured  to  prevent  the  ultimate  realization  by  the  insured  of  mote  than  full 
indemnity." 


30O  LIMITS   OF   THE    CONTRACTUAL   OBLIGATION. 

an  application  for  a  policy,  and  the  plaintiff  would  pay  the  premiums. 
Baker  was  the  plaintiff's  brother-in-law,  but  he  had  no  other  inter- 
est in  his  life.  The  court  left  it  to  the  jury  to  say  whether  the 
policy  was  taken  out  in  good  faith  by  Baker,  with  a  designation  of 
the  plaintiff  as  a  person  to  receive  the  money,  or  whether  it  was 
intended  by  the  plaintiff  as  a  wagering  contract  upon  Baker's  life. 
The  jury  returned  a  verdict  for  the  amount  of  the  policy.  Motion 
was  made  for  a  new  trial  upon  the  ground  of  misdirection  upon  this 
and  other  points  stated  in  the  opinion. 

Brown,  D.  J.  — The  policy  in  this  case  purported  upon  its  face 
to  be  taken  out  by  the  insured  upon  his  own  life,  but  the  evidence 
shows  that  it  was  taken  at  the  suggestion  of  his  brother-in-law,  who 
sent  the  agent  of  the  company  to  Baker,  and  paid  all  the  premiums 
upon  the  policy.  It  was  made  payable  to  the  plaintiff  in  case  he 
survived  Baker.  Baker's  life  had  previously  been  insured  in  other 
companies  for  plaintiff's  benefit  to  the  amount  of  $6,000.  He  had 
also  made  application  to  the  Massachusetts  Mutual  Life  Insurance 
Company  for  a  policy  of  $3,000,  which  was  rejected.  Upon  the 
trial,  the  question  was  left  to  the  jury  to  say  whether  the  policy  was 
obtained  in  good  faith,  and  not  for  the  purpose  of  speculation  in 
the  hazard  of  a  life  in  which  the  plaintiff  had  no  legal  interest.  It 
was  thought  that  the  fact  that  the  policy  provided  in  express  terms 
that  in  case  of  the  previous  death  of  the  plaintiff  it  should  revert  to 
the  insured,  and  hence  that  the  plaintiff's  interest  was  contingent 
upon  his  surviving  Baker,  was  some  evidence  to  go  to  the  jury  that 
the  policy  was  taken  out  in  good  faith.  It  was  certainly  consistent 
with  an  understanding  that  the  plaintiff  wished  to  hold  the  policy 
during  his  life  as  security  for  the  premiums,  with  a  resulting  trust 
in  favor  of  Baker's  wife,  who  was  his  own  sister. 

It  is  now  well  settled  in  the  federal  courts  that  a  party  cannot 
take  out  an  insurance  upon  his  own  life  and  assign  the  policy,  either 
contemporaneously  with  its  execution  or  subsequently,  to  a  person 
having  no  legal  interest  in  his  life,  although  the  decisions  of  the 
State  courts  upon  this  point  are  conflicting.  Wa>->wck  v.  Davis,  104 
U.  S.  775;  Camtnack  v.  Lewis,  15  Wall.  643.  But  there  is  no  case, 
to  my  knowledge,  which  holds  that  a  party  may  not  insure  his  own 
life  and  make  the  policy  payable  to  any  one  he  may  select,  though 
such  person  have  no  legal  interest  in  his  life.  This  point  was  first 
held  in  the  case  of  Campbell  v.  Neiv  England  Mut.  Ltfe  Ins.  Co.,  98 
Mass.  381.  The  policy  in  this  case  was  taken  out  by  Campbell  upon 
his  life,  payable  to  him,  his  executors,  etc  ,  for  the  benefit  of  the 
plaintiff,  in  very  nearly  the  same  terms  as  are  contained  in  the  policy 
under  consideration.     The   only   substantial   difference  in  the  two 


BENEFICIARIES.  3DI 

cases  is  that  the  premium  in  this  case  was  paid  by  the  assured,  and 
not  by  the  beneficiary.  So  in  the  Providoit  Life  Ins.  Co.  v.  Bau}n, 
29  Ind.  236,  it  was  said  to  be  "  beyond  question  that  a  person  has 
an  insurable  mterest  in  his  own  life,  and  that  he  may  effect  such 
insurance,  and  appoint  any  one  to  receive  the  money,  in  case  of  his 
death  during  the  existence  of  such  a  policy."  This  was  an  accident 
policy  in  similar  terms.  Although  this  exact  question  has  not  often 
been  decided,  the  intimations  of  the  courts  are  uniformly  in  the 
same  direction.  Lemon  v.  Phoenix  Mut.  Life  Ins.  Co.,  38  Conn.  294, 
302;  Guardian  Mid.  Life  Ins.  Co  v.  Ilogan,  80  111.  35;  American  L. 
6-  H.  Ins.  Co.  V.  Robertshaiv,  26  Pa.  St.  189;  Fairfield  v.  N.  E.  Mut. 
Life  Ass' n,  51  Vt.  624;   Olmstcad  m.  Keyes,  11  Ins.  Law  J.  55. 

Hence,  the  production  of  the  policy,  proof  of  payment  of  premi- 
ums, and  of  the  insured's  death,  were  sufficient  to  make  2, prima 
facie  case  for  the  plaintiff  without  evidence  of  interest  in  him.  The 
facts,  however,  that  the  policy  was  taken  out  by  Baker  at  the  plain- 
tiff's instigation,  and  that  the  premiums  were  paid  by  plaintiff,  taken 
in  connection  with  Baker's  position  in  life,  his  total  want  of  means, 
and  the  further  fact  that  the  plaintiff  had  obtained  policies  upon  his 
life  to  the  amount  of  $6,000  in  addition  to  this,  were  strong  evi- 
dence to  show  that  the  transaction  was  a  mere  wager  upon  his  life, 
notwithstanding  the  fact  of  Baker's  reversionary  interest.  The 
case  was  submitted  to  the  jury  in  supposed  conformity  to  the 
opinion  of  the  Supreme  Court  in  Conn.  Aliitiial Life  Ins.  Co.  v.  Shaffer, 
94  U.  S.  67.  See,  also,  ^Etna  Life  Ins.  Co.  v.  France.,  Id.  561; 
Brockway  v.  Mut.  Benefit  Life  Ins.  Co.,  10  Ins.  Law  J.  763-769, 
Wainw right  v.  Bland,  1  Moody  &  R.  481  ;  Swick  v.  Home  Life  Ins. 
Co..,  2  Dill,  160.  The  mere  payment  of  the  premiums  by  plaintiff  is 
not  conclusive  evidence  that  the  policy  was  taken  out  by  him. 
Tuston  v.  Hardey,  14  Beav.  232;  Armstrong  v.  Mut.  Life  Ins.  Co.,  13 
Reporter,  711.  Were  it  an  original  question,  I  should  be  disposed 
to  say  that  a  policy  taken  out  by  one  person  for  the  benefit  of 
another  could  no  more  be  supported  without  evidence  of  legal  mter- 
est in  the  beneficiary,  than  a  policy  assigned  to  one  having  no 
interest  in  the  life.  But  a  large  number  of  cases  seem  to  make  this 
distinction,  and  I  know  of  none  which  reject  it.  Under  all  the  cir- 
cumstances, I  think  the  question  was  properly  submitted  to  the 
jury.     *     *     =i«  1 

'  See  also,  in  accord,  Bloomins^ton  Mut.  Ben.  Assoc,  v.  Blue.  120  111.  121. 

In  Trinity  Colles,e  v.  Ins.  Co.,  113  N.  C.  244,  Sheppe  insured  his  life,  making 
Trinity  College  the  beneficiary.  The  beneficiary  paid  all  the  premiums,  but 
had  no  insurable  interest  in  Sheppe's  life.     The  beneficiary  sued  to  recover  the 


362  LIMITS    OF   THE    CONTRACTUAL   OliLIGATION. 

2.   Nature  of  the  Beneficiary's  Interest. 

HARLEY,  Adm'r  r.  HEIST 

86  Ind.  196.  —  1882. 

ZoLLARS,  J.  —  The  record  in  this  case  presents  in  different  forms 
the  following  material  facts:  On  the  ist  day  of  February,  1867,  in 
consideration  of  the  payment  of  a  premium  of  $70.20  by  David 
Snvder,  and  the  same  amount  thereafter  to  be  paid  annually,  the 
Connecticut  Mutual  Life  Insurance  Company  executed  and  delivered 
to  said  David  Snyder  a  policy  of  insurance  upon  his  life,  in  which 
it  agreed  to  pay  $2,000  upon  due  proof  of  his  death.  That  portion 
of  the  policy  which  is  material  to  the  parties  in  this  controversy  is 
as  follows:  "  And  the  said  company  do  hereby  promise  and  agrc-e 
with  the  said  assured,  his  heirs,  executors,  administrators  and 
assigns,  well  and  truly  to  pay,  or  cause  to  be  paid,  at  the  city  of 
Hartford,  the  said  sum  insured  to  the  said  assured,  his  executors, 
administrators  or  assigns,  within  ninety  days  after  due  notice  and 
proof  of  the  death  of  the  said  David  Snyder,  for  the  benefit  of  and 
payable  to  Wilhelmina  R.  Snyder,  wife  of  said  David  Snyder, 
deducting  therefrom  all  notes  taken  for  premiums  unpaid  at  that 
date.  And  it  is  hereby  conditioned  and  agreed,  that  if  at  any  time 
after  three  premiums  have  been  paid  on  this  policy,  it  shall  be  sur- 
rendered while  yet  in  force,  the  company  will  issue  a  paid-up,  non- 
forfeiture policy  therefor,  for  such  an  amount  as  the  then  present 
value  of  this  policy  would  purchase,  as  a  single  premium."  The 
wife  Wilhelmina,  died  intestate  in  December,  1869.  and  left  surviv- 
ing her,  her  husband,  David,  and  their  two  minor  children.  On 
the  20th  day  of  February,  1871,  said  David  Snyder,  being  indebted 
to   appellee,  assigned   the   policy  to   him   by  endorsing  upon  it  the 

following- 

"  Columbia  City,  February  20///,  1871. 
"  For  value  received,  I  herewith  assign  my  interest  to  the  within 

policy  to  Henry  Heist. 

David  Snyder." 

In  the  month  of  November,  1874,  David  Snyder  died  intestate. 
Up  to  the  time  of  the  assignment  and  delivery  of  the  policy  to 
appellee,  said  David  Snyder  paid  the  premiums  as  stipulated  for  in 
the  policy.     After  the  assignment,  appellee  paid  the  premiums,  viz. : 

cash  surrender  value  of  the  policy,  there  bein?  a  provision  in  the  policy  for  sur- 
rendering the  policy.  The  complaint  was  demurred  to  and  the  demurrer  sus- 
tained; the  court  saying  that  the  policy  was  "  illegal  and  void  "  as  a  wagering 
contract. 


BENEFICIARIES.  363 

On  the  24th  day  of  January,  1872,  $48  70;  on  the  24th  day  of  Janu- 
ary, 1873,  $46.20;  and  on  the  24th  day  of  January,  1874,  $46  55.  In 
1875,  after  appellant  had  been  appointed  administrator  of  the  estate 
of  said  Wilhelmina,  the  insurance  company  filed  its  complaint  in  the 
Whitley  Circuit  Court  against  the  parties  in  thi^  cause,  asking  that 
they  be  required  to  set  up  their  respective  claims  to  the  policy  and 
the  money  due  thereon.  After  appellee  had  filed  his  answer  and 
cross-complaint,  the  insurance  company,  by  agreement  of  the  par- 
ties, and  an  order  of  the  court,  paid  to  the  clerk  $1,909.73,  being 
the  amount  due  on  the  policy,  less  an  unpaid  premium  note,  and 
interest  on  the  same,  amounting  in  all  to  $127.68.  We  are  not 
informed  by  whom  this  note  was  executed. 

After  this,  the  venue  was  changed  to  the  Kosciusko  Circuit  Court. 
In  that  court  appellant  filed  his  answer  and  cross-complaint,  to 
each  paragraph  of  which,  except  the  general  denial,  a  demurrer  by 
appellee  was  sustained,  and  appellant  excepted.  The  cause  was 
then  submitted  to  the  court,  and  after  the  finding  of  facts,  and  con- 
clusions of  law  on  the  same,  a  judgment  was  rendered,  giving  to 
appel'.ee  the  full  amount  of  money  so  paid  over  by  the  insurance 
company,  the  same  not  exceeding  the  amount  of  the  premiums  paid 
by  him,  with  interest,  and  the  amount  due  him  frjm  Snyder  for 
which  the  policy  was  assigned.      From  this  judgment  appellee  appeals. 

Was  the  policy  the  personal  property  of  the  wife  Wilhelmina  in 
such  a  sense  that,  upon  her  death,  it  went  to  her  heirs  at  law  as  a 
part  of  her  estate,  or  was  it  upon  her  death  the  property  of  the  hus- 
band, so  that  his  assignment  transferred  the  legal  title  to  the  same 
to  appellee?  This  is  the  important  question  presented  by  the  record, 
the  determination  of  which,  counsel  agree,  will  be  decisive  of  this 
controversy.  That  the  policy  was  personal  property,  under  our 
statute  (2  R.  S.  1876,  p.  314),  we  think  there  can  be  no  question. 
In  consideration  of  the  payment  of  the  annual  premiums,  it  con- 
tained a  definite  and  fixed  promise  to  pay  a  definite  and  fixed  amount 
of  money,  upon  the  happening  of  an  event,  which  was  uncertain  in 
.nothing  except  the  time  at  which  it  might  occur.  Such  a  policV  of 
insurance  is  a  chose  in  action,  governed  by  the  same  principles 
applicable  to  other  agreements  involving  pecuniary  obligations, 
Bliss,  Life  Insurance  (2d  ed.),  p.  540;  Hutson  v,  Mcrrifield,  51  Ind.  24, 
19  Am.  R.  722. 

The  policy  in  this  case,  by  its  terms,  was  executed  for  the  benefit 
of  the  wife,  and,  upon  a  fair  construction,  was  payable  to  her,  and 
not  to  the  personal  representatives  of  the  husband.  Upon  its  exe- 
cution, the  title  vested  in  the  wife,  and  not  in  the  husband.  Ey  the 
procurement   of  the    husband,  the   wife   became   the   owner  of   the 


364  LIMITS   OK   THE   CONTRACTUAL   OBLIGATION. 

policy  and  entitled  to  collect  the  amount  that  might  become  due  on 
the  same  upon  the  death  of  the  husband.  Had  the  wife  procured 
the  policy  to  be  issued,  and  paid  the  premiums,  no  one  could  doubt 
as  to  the  ownership  of  the  policy,  and  the  right  to  collect  the  money 
due  thereon.  We  are  unable  to  see,  in  this  case,  why  there  should 
be  any  difference  in  the  ownership  and  title  of  the  policy  by  reason 
of  the  application  having  been  made  and  premiums  paid  by  the 
husband.  Had  the  policy  been  made  payable  to  the  husband,  he 
doubtless  might  have  given  it  to  the  wife,  and,  by  proper  indorse- 
ments thereon,  conveyed  to  her  the  legal  title  to  the  same.  In  such 
a  case  it  would  have  become  her  separate  property,  by  gift  from  her 
husband;  and  so,  too,  he  had  the  legal  right,  in  the  first  instance, 
to  make  the  application,  pay  the  premiums,  and  have  the  policy 
made  payable  to  the  wife  for  her  benefit,  and  thus  vest  in  her  the 
legal  title  and  ownership  of  the  policy,  as- her  separate  property. 
The  title  and  ownership  of  the  policy  being  vested  in  the  wife  by 
gift  from  the  husband,  it  was  her  separate  property,  to  be  disposed 
of  under  the  statute,  which  provides  that  the  personal  property  of 
the  wife,  acquired  during  coverture,  by  descent,  devise,  or  gift, 
shall  remain  her  own  separate  property,  to  the  same  extent  and 
under  the  same  rules  as  her  real  estate  so  remains,  and,  on  her  death 
before  the  husband,  shall  be  distributed  in  the  same  manner  as  her 
real  estate  descends,  and  is  apportioned  under  the  same  circum- 
stances.     I  R.  S.  1S76,  p.  412;   R.  S.  1881,  sec.  2488. 

Personal  property  thus  acquired  by  the  wife,  upon  her  death, 
descends  to  her  heirs  at  law,  as  does  her  real  estate,  except  for  the 
purpose  of  paying  debts  and  costs  of  administration,  the  title  vests 
in  the  administrator,  if  one  be  appointed.  In  this  case  the  policy 
of  insurance,  upoii  the  death  of  the  wife  Wilhelmina,  descended  to 
her  heirs  at  law;  the  undivided  one-third  to  the  husband,  David 
Snyder,  and  the  other  two-thirds  to  the  minor  children,  subject  to 
the  rights  of  the  appellant,  as  the  administrator  of  her  estate,  who, 
for  the  purpose  of  paying  debts  and  costs  of  administration,  has  the 
right  to  collect  the  money  due  upon  the  policy,  to  the  exclusion  of 
all  others.  If  there  had  been  no  need  of  administration,  and  no 
administrator  had  been  appointed,  the  heirs  at  law  of  the  wife  might 
have  collected  the  money.  Subject  to  this  right  of  the  administra- 
tor, the  husband  had  the  legal  right  to  assign  his  interest  in  the 
policy,  as  he  did,  to  the  appellee.  Upon  such  assignment  appellee 
became  the  owner  of,  and  entitled  on  distribution  to.  one-third  of 
the  amount  due  upon  the  policy,  after  the  payment  of  debts  and 
costs  of  administration. 

We  have  carefully  examined  the  cases  cited  by  the  learned  coun- 


BENEFICIARIES.  365 

sel  on  either  side,  besides  many  others,  and,  while  there  is  some 
conflict,  the  conclusions  reached  by  us  in  this  case  are  in  accord 
with  the  decided  weight  of  the  authorities.  In  the  case  of  Hiitson 
V.  Merrifield,  51  Ind.  24,  the  contest  was  between  the  administrator 
of  the  husband  and  the  surviving  wife.  The  wife  had  taken  out  a 
policy  upon  the  life  of  the  husband,  payable  to  herself,  or  in  case  of 
her  death,  to  her  children.  The  premiums  were  paid  by  the  wife. 
She  died  before  the  husband  and  without  children.  The  case  was 
disposed  of  as  though  the  policy  had  contained  no  clause  in  relation 
to  children.  After  deciding  that  the  policy  was  a  chose  in  action, 
the  court  say:  "  If  the  policy  is  a  chose  in  action,  it  is  personal 
property  which  at  the  death  of  the  party  holding  and  owning  it 
would  vest  in  the  heirs  of  such  person,  subject  to  the  payment  of 
debts.  That  the  amount  of  the  policy  is  not  payable  until  the  death 
of  the  life  insured,  can  make  no  difference."' 

In  the  case  of  Pence  v.  Afakepiece,  65  Ind.  345,  the  question  arose 
between  the  administrator  of  the  assignee  of  a  policy  of  life  insur- 
ance, and  the  widow  of  the  insured.  The  husband  had  procured  a 
policy  of  insurance  upon  his  life,  payable  to  his  wife,  and  paid  the 
premiums.  During  the  lifetime  of  the  husband  the  policy  was 
assigned  as  collateral  security,  and  the  assignee,  before  the  death 
of  the  husband,  paid  three  annual  premiums.  After  the  death  of 
the  husband,  and  on  the  trial  of  the  cause  in  relation  to  the  money 
due  on  the  policy,  the  wife  denied  that  she  joined  with  her  husband 
in  the  assignment  of  the  policy.  The  court  below  had  instructed 
the  jury  that  the  policy,  being  payable  to  the  wife,  vested  in  her 
alone  the  absolute  ownership  of  it,  and  that  it  could  not  be  assigned 
or  transferred  to  any  one  by  her  husband,  or  any  other  person, 
without  her  authority.  This  instruction  was  held  by  this  court  to 
express  the  law  correctly.  See,  to  the  same  effect,  Wilburn  v. 
Wilburn,  83  Ind.  55,  and  authorities  cited.  In  Bliss  on  Life  Insur- 
ance (2d  ed.),  §  318,  the  author  says:  "We  apprehend  the  gen- 
eral rule  to  be  that  a  policy,  and  the  money  to  become  due  under  it, 
belong  the  moment  it  is  issued  to  the  person  or  persons  named  in  it 
as  the  beneficiary  or  beneficiaries,  and  that  there  is  no  power  in  the 
person  procuring  the  insurance,  by  any  act  of  his,  by  deed  or  by 
will,  to  transfer  to  any  other  person  the  interest  of  the  person 
named.  An  irrevocable  trust  is  created.  *  *  *  The  legal  repre- 
sentatives of  the  insured  have  no  claim  upon  the  money,  and  cannot 
maintain  an  action  therefor,  if  it  is  expressed  to  be  for  the  benefit 
of  some  one  else." 

In  the  case  of  Keller  v.  Gaylor,  40  Conn.  343,  a  husband  had  taken 
a  policy  upon  the  life  of  his  wife,  payable  to  himself,  or,  in  case  of 


366  LIMITS    OF    THE    CONTRACTUAL    015LIGATU)N. 

his  death  before  the  wife,  to  his  children.  He  died  before  the  wife, 
and  without  children.  Held,  that  at  his  dec:th  he  had  a  vested 
interest  in  the  policy,  and  that,  by  his  will,  it  went  to  the  wife.  See, 
also,  Chapin  v.  Fcllowes,  36  Conn.  132,  5  Am.  R.  49;  Crittenden  v. 
Phoenix  Mutual  Life  Ins.  Co..,  41  Mich.  442;  Connecticut  Mutual  Life 
Ins.  Co.  V.  Burroughs,  34  Conn.  305  ;  Ruppert  v.  Union  Mutual  Ins . 
Co..  7  Rob.  (N.  Y.)  155. 

It  is  maintained  by  the  learned  counsel  for  appellee,  that  Snyder, 
having  paid  the  premium,  had  the  right,  after  the  death  of  the  wife, 
to  omit  the  payment  and  thus  let  the  policy  forfeit;  and  that,  to 
avoid  this  loss,  he  had  the  right  to  change  the  beneficiary,  or  con- 
stitute himself  such,  by  the  assignment.  If  the  policy  was  personal 
property,  and  the  title  thereto  was  vested  in  the  wife,  we  are  unable 
to  understand  how  the  husband,  by  any  act  of  his,  without  the  con- 
sent of  the  beneficiary,  could  change  the  ownership.  The  property, 
under  the  statute,  passed  at  once  upon  the  death  of  the  wife  to  her 
heirs  at  law,  and  the  husband  had  no  more  control  over  it  than 
before  her  death.  True,  he  could  not  have  been  compelled  to  pay* 
the  premiums.,  or  provide  for  the  payment,  but  having  paid  them  by 
himself  and  his  assignee,  the  policy  did  not  lapse,  and  the  title  to 
and  ownership  of  the  same  did  not  change. 

In  the  same  edition  of  Bliss  above  quoted  from,  section  337,  the 
author  says:  "  Where  the  policy  designates  a  person  to  whom  the 
insurance  money  is  to  be  paid,  the  person  who  procures  the  insur- 
ance and  who  continues  to  pay  the  premiums  has  no  authority,  by 
will  or  deed,  to  change  the  designation  or  title  to  the  moneys.  He 
is  under  no  obligation  to  continue  to  pay  the  premiums,  unless  he 
has  covenanted  so  to  do,  but  if  he  does  so,  the  person  originally 
designated  in  the  policy  will  derive  the  benefit.  The  change  of 
designation  can  only  be  made  by  the  person  originally  designated, 
and  therefore  all  of  such  persons  must  concur  in  the  change.  If 
the  policy  is  for  the  benefit  of  a  woman  and  her  children,  the  chil- 
dren as  well  as  the  woman  must  concur."  In  the  case  of  Chapin  v. 
Fellowes,  36  Conn.  132,  a  policy  was  issued  upon  the  life  of  the  hus- 
band, payable  to  the  wife;  or,  in  case  of  her  death,  to  her  children. 
The  wife  died  before  the  husband.  After  her  death  the  husband 
surrendered  the  policy  and  took  another  for  the  same  amount, 
the  same  date,  and  the  same  premium,  but  payable  to  himself.  He 
paid  one  year's  premium,  and  died  insolvent.  In  a  contest  between 
the  children  and  the  husband's  creditors,  it  was  held  that  the  hus- 
band had  no  right  without  the  consent  of  the  children  thus  to  sur- 
render the  old  policy  and  take  the  new  one,  payable  to  himself;  and 
that   the   children  were   entitled   to   the   amount   due  on   the  latter 


BENEFICIARIES.  367 

policy,  In  the  case  of  Ricker  v.  Charter  Oak  Life  Ins.  Co.,  27  Minn. 
193,  38  Am.  R.  289,  the  husband  had  procured  a  poHcy  of  insurance 
np  )  1  Ills  life,  payable  to  his  wife,  or  in  case  of  her  death,  to  his 
civi.  Iroa.  After  the  death  of  the  wife,  and  a  remarriage,  he  surren- 
dered the  original  policy,  and  a  new  one  was  issued  in  its  place  as  a 
substitute  therefor,  bearing  the  same  date  and  containing  the  same 
terms  and  conditions,  except  a  provision  that  it  should  inure  to  the 
sole  use  and  separate  benefit  of  the  second  wife.  Held,  that  the 
husband  had  no  right  to  thus  change  the  policy  without  the  consent 
of  the  children,  and  that  they  were  entitled  to  the  avails  of  the  new 
policy  as  against  the  second  wife.  It  is  said  by  counsel  that  these 
decisions  were  made  under  peculiar  statutes,  and  are  therefore  not 
authority  in  this  State.  It  will  be  found  upon  examination  that 
these  statutes,  where  they  exist,  give  to  married  women  no  greater 
rights  in  policies  or  the  avails  of  policies,  upon  the  lives  of  their  hus- 
bands, than  they  have  under  the  laws  of  this  State,  except  that, in  some 
of  the  States,  no  claim  of  fraud  can  be  made  by  creditors  if  the  annual 
premiums  paid  by  the  husband  do  not  exceed  certain  amounts. 

It  is  said  further,  that  to  deny  to  the  husband  who  has  paid  the 
premiums  the  right  to  dispose  of  the  policy  to  his  own  use,  after 
the  death  of  the  wife,  imposes  upon  him  a  hardship  and  wrong.  A 
sufificient  answer  to  this  is,  that  if  he  wishes  to  retain  to  himself  the 
control  and  ownership  of  the  policy  in  such  case,  he  may  so  provide 
in  the  policy.  It  was  to  avoid  this  so-called  wrong,  that  the  Wis- 
consin court  has  held  that  the  person  procuring  the  policy  may  dis- 
pose of  it  without  the  consent  of  his  nominee.  Such  a  view,  we 
thmk,  is  not  consistent  with  legal  principles,  is  in  conflict  with 
former  rulings  of  this  court,  and  against  the  weight  of  the  authori- 
ties in  the  other  States. 

The  appellee,  having  in  good  faith  paid  the  premiums  since  the 
assignment  of  the  policy,  is  entitled  to  have  the  amount  so  paid, 
with  interest  at  six  per  cent.,  refunded  to  him  out  of  the  money  paid 
over  by  Xht  insurance  company.  It  follows  from  the  conclusion  we 
have  reached,  that  the  court  below  was  in  error  in  rendering  judg- 
ment for  appellee,  and  in  its  rulings  upon  demurrers  to  pleadings. 
The  judgment  is  therefore  reversed,  at  the  costs  of  appellee,  with 
instructions  to  the  court  below  to  overrule  appellee's  demurrers  to  the 
first,  second,  fourth,  fifth,  and  sixth  paragraphs  of  appellant's  answer 
and  cross-complaint,  to  sustain  the  demurrer  to  appellee's  answer 
and  cross-complaint,  and  to  proceed  in  accordance  with  this  opinion.' 

'  In  Pingrey  v.  Ins.  Co.,  144  Mass.  374,  an  insurance  company  issued  a  policy 
of  insurance  on  the  life  of  Pingrey,  payable  to  him  as  soon  as  the  premiums, 
together  with  such  other  sums  as  he  should   pay,  should  amount  to  the  sum 


368  LIMITS    OF   THE   CONTRACTUAL   OBLIGATION. 

RVAX  V.  ROTHWEILER  et  al. 

50  Ohio.  595  —  1S93. 
On  the  19th  day  of  March,  1864,  the  Home  Life  Insurance  Com- 
pany executed  its  policy  of  that  date,  and  thereby  insured  the  life 
of  Charles  C.  Hehvig  in  the  sum  of  $2,000,  in  consideration  of  a 
premium  of  S72.20,  to  be  paid  on  or  before  the  19th  day  of  March 
of  each  year  during  the  life  of  said  Charles  C.  Hehvig.  The  policy 
was  made  payable  to  Anna  Helwig,  wife  of  the  assured,  and  in  case 
of  her  death  during  the  lifetime  of  her  husband  the  policy  was  made 
payable  to  her  children  by  her  said  husband,  to  their  use,  or  to  their 
guardian,  if  under  age.  Anna  Hehvig  died  November  21,  1872, 
leaving  an  only  child,  Anna  C.  Helwig,  who  was  afterward  married 
to  Charles  T.  Ryan,  and  she  died  on  the  29th  day  of  December, 
1881,  leaving  an  only  child,  Raymond  C.  Ryan,  who  died  on  the 
2ist  day  of  September,  1883.  Charles  C.  Helwig  died  in  the  month 
of  September.  1885,  leaving  two  daughters  by  a  former  wife  surviv- 
ing him.  Their  names  are  Caroline  Salome  Ketter  and  Maria  Rosina 
Scherman.  Jacob  Rothweiler  was  duly  appointed  administrator  of 
the  estate  of  Charles  C.  Hehvig,  deceased,  and  Charles  T.  Ryan 
was  duly  appointed  administrator  of  the  estate  of  his  wife,  and  also 
of  his  infant  son.  Notice  of  the  death  of  Charles  C.  Helwig  having 
been  given  to  the  life  insurance  company,  and  the  company  failing 
to  pay  the  policy,  an  action  was  commenced  by  the  administrator  of 

insured.  In  case  of  his  prior  death  the  company  agreed  with  him  to  pay  the 
sum  insured  to  his  mother.  The  policy  further  provided,  that,  after  the  pay- 
ment of  1  wo  full  premiums,  it  should  not  lapse.  His  intention  was  to  make  the 
policy  for  the  benefit  of  his  mother,  who  furnished  him  with  money  to  pay  part 
of  the  first  premium.  The  mother  never  had  possession  of  the  policy.  He 
subsequently  married,  and,  without  his  mother's  assent,  surrendered  the  policy 
to  the  company,  and  took  out  a  new  one  for  the  same  amount  payable  to  his 
wife.  This  policy  contained  the  statement  that  it  was  a  continuation  of  the  first 
policy.  He  died  before  his  payments  amounted  to  the  sum  insured.  It  was 
held,  that  the  first  policy  was  a  settlement  in  trust  for  the  benefit  of  the  mother, 
which  he  could  not  revoke;  and  that  the  mother  was  entitled  to  the  proceeds. 
The  court  said:  "There  appears  to  have  been  a  full  understanding  between 
him  and  his  mother  that  the  policy  was  to  be  taken  out  for  her  benefit,  and 
afterwards  that  it  had  been  so  done.  In  point  of  fact,  it  was  made  payable  to 
her,  and  this  was  done  with  the  intention  of  giving  to  her  the  benefit  of  it. 
This  constituted  a  valid  settlement  in  her  favor.  Nothing  remained  to  be  done 
by  him  to  complete  it.  He  might,  indeed,  afterwards  fail  to  pay  the. annual  pre- 
miums. This,  however,  does  not  prevent  it  from  being  a  good  trust.  An 
unrevoked  trust  is  valid,  even  though  there  is  an  express  povver  of  revocation. 
S/o>te  V.  Hackett,  12  Gray,  227.  In  this  case  the  assured  reserved  to  himself  no 
povver  of  revocation,  or  of  changing  the  beneficiary." 

See  also  Olmstead  v.  Keyes,  85  N.  Y.  593,  digested  in  Steinback  v.  Diepenhrock, 
post.  p.  404. 


BENEFICIARIES.  369 

Charles  C.  Helwig  and  by  his  two  surviving  daughters  against  the 
insurance  company,  and  said  Charles  T.  Ryan  was  made  a  defend- 
ant, and  required  to  set  up  his  interest  in  the  policy.  The  insur- 
ance company  paid  the  money  into  court,  and  was  discharged^ 
Charles  T.  Ryan  filed  his  answer  and  cross-petition,  averring  that  he 
had  been  appointed  administrator  of  the  estate  of  his  wife  and  of 
his  infant  child,  and  claiming  the  insurance  money  as  such  adminis- 
trator. The  plaintiff  below  demurred  to  Ryan's  answer  and  cross- 
petition  on  the  ground  that  the  same  does  not  state  facts  sufficient  to 
entitle  him  to  the  insurance  mone}'.  The  Court  of  Common  Pleas 
overruled  the  demurrer;  to  which  exceptions  were  taken,  and,  plain- 
tiffs below  not  desiring  to  further  plead,  judgment  was  rendered  in 
favor  of  said  Charles  T.  Ryan  as  such  administrator.  A  petition 
in  error  was  filed  in  the  Circuit  Court,  and  the  judgment  of  the 
Court  of  Common  Pleas  was  reversed.  Thereupon,  Charles  T. 
Ryan  filed  his  petition  in  error  in  this  court  for  the  purpose  of 
reversing  the  judgment  of  reversal  of  the  Circuit  Court. 

BuRKET,  J.  — The  petition  avers  that  the  premium  was  paid  by 
Charles  C.  Helwig,  and  this  is  not  denied  by  Charles  T.  Ryan  in  his 
answer  and  cross-petition.  True,  he  avers,  in  the  language  of  the 
policy,  that  the  first  premium  was  in  hand  paid  by  the  wife,  and 
that  the  subsequent  premiums  were  to  be  paid,  without  stating  by 
whom  the  payments  were  to  be  made.  The  fact  that  Charles  C.  Hel- 
wig survived  his  wife  and  daughter  and  grandson,  and  that  no  aver- 
ment is  made  in  the  cross-petition  as  to  the  payment  of  the  premi- 
um, during  all  the  years  from  1864  to  1885,  and  the  further  fact 
that  the  allegation  in  the  petition  to  the  effect  that  the  premiums 
were  to  be  paid  by  the  assured  is  not  denied,  further  than  by  a 
recital  of  the  contents  of  the  policy,  leaves  the  fact  reasonably  cer- 
tain that  the  premiums  were  paid  by  the  assured,  Charles  C.  Helwig. 
In  fact,  no  other  conclusion  can  be  reached  from  a  careful  reading 
of  the  petition  and  cross-petition,  regard  being  had  to  the  order  in 
which  the  parties  died;  and  the  arguments  of  counsel  on  both  sides 
seem  to  concede  the  fact  so  to  be.  On  the  part  of  Charles  T. 
Ryan,  it  is  claimed  that,  by  the  terms  of  the  policy,  Mrs.  Helwig, 
and,  after  her  death,  her  daughter,  Anna  Ryan,  had  a  vested  inter- 
est in  the  amount  to  be  paid,  which  could  not  be  divested  by  any 
act  of  the  husband  or  the  insurance  company,  or  both;  that  this 
vested  right  was  a  chose  in  action,  — a  simple  contract  to  pay  her 
(Anna  Ryan)  a  certain  sum  of  money  on  the  happening  of  an  event 
certain;  that  upon  her  death  the  chose  in  action  passed  to  her 
administrator,  to  be  collected  when  due,  and  the  proceeds  dis- 
tributed to  her  next  of  kin.     On  the  part  of  the  defendants  in  error, 

LAW  OF  INSURANCE  —  2J. 


3/0  LIMITS    OF   THE   CONTRACTUAL   OBLIGATION, 

it  is  claiiufd  that  tliis  insurance  policy  is  a  kind  of  trust,  and  that 
when  the  beneficiaries  of  the  trust  fund  died  tiie  fund  lapsed  into 
the  estate  uf  the  person  who  created  the  trust,  and  at  his  death 
became  a  part  of  his  estate,  subject  to  administration  and  bequest 
as  other  parts  of  his  personal  estate.  Many  authorities  have  been 
cited  by  the  attorneys  on  both  sides  to  support  these  propositions, 
and  the  Circuit  Court  well  said  that  "  there  is  admitted  confusion 
among  the  reported  cases  and  authors  upon  the  subject."  The 
question  has  never  been  decided  in  this  State,  and  hence,  we  are  at 
liberty  to  adopt  such  rule  as  we  think  is  most  consistent  with  jus- 
tice, and  the  intention  of  the  parties.  The  question  is  not  governed 
so  much  by  the  principles  of  choses  in  action  and  vested  rights  as 
by  the  principles,  aims,  and  well-known  objects  of  life  insurance. 
The  cases  which  hold  the  insurance  money  to  be  a  trust  fund,  which 
reverts  to  the  estate  of  the  assured  in  case  of  the  death  of  all  the 
named  beneficiaries  during  the  lifetime  of  the  assured,  give  different 
reasons  for  the  result  arrived  at.  Some  place  it  upon  the  ground 
that  the  person  to  whom  the  fund  would  otherwise  go  has  no  insur- 
able interest  in  the  life  of  the  assured,  while  others  place  it  upon 
the  doctrine  of  failure  of  trust  by  the  death  of  the  beneficiary. 

In  the  case  nr)w  under  consideration,  should  plaintiff  in  error 
succeed,  he  would  receive  the  insurance  money,  while  he  manifestly 
had  no  insurable  interest  in  the  life  of  Mr.  Helwig.  While  Anna  C. 
Ryan  had  an  insurable  interest  in  the  life  of  her  father,  her  adminis- 
trator had  no  such  interest.  While  a  man  may  cause  his  own  life 
to  be  insured  for  the  benefit  of  a  stranger,  and  the  want  of  insur- 
able interest  in  the  stranger  will  not  invalidate  the  policy,  a  policy 
taken  out  by  a  man,  for  his  own  benefit,  on  the  life  of  a  stranger, 
would  be  void,  for  want  of  insurable  interest.  May,  Ins.  §  75b. 
The  theory  of  a  failure  of  trust  comes  with  more  force  and  stronger 
reasons  than  the  doctrine  of  choses  in  action,  so  strongly  urged  by 
counsel  for  plaintiff  in  error.  We  regard  the  doctrine  of  choses  in 
action  as  not  fully  applicable,  because  it  conflicts  in  many  cases  with 
the  controlling  doctrine  of  insurable  interest.  The  case  of  Manhattan 
Insurance  Co.  v.  Smith,  44  Ohio  St.  156,  5  N.  E.  417,  was  a  case  of 
attempted  change  of  beneficiary,  and  of  forfeiture  of  policy.  No 
such  questions  arise  in  this  case.  Here  the  question  is  not  as  to 
change  of  beneficiary,  but  as  to  reverter  of  the  policy  to  the  assured 
by  reason  of  the  death  of  all  the  beneficiaries.  Hence,  that  case 
throws  no  light  upon  the  question  here  involved.  On  principle, 
therefore,  and  aside  from  any  statute  on  the  subject,  we  think  that 
in  this  case  the  policy  reverted  to  Mr  Heiwig.  and  at  his  death 
became  a  part  of  his  estate.     It  seems  to  us  that  this  was  the  mani- 


BENEFICIARIES.  3^1 

fest  intention  and  understanding  of  all  the  parties  interested,  and 
that  the  result  is  just  and  equitable.  While  there  may  have  been  a 
vested  interest,  it  was  an  interest  not  in  possession,  but  in  expec- 
tancy, liable  to  be  divested  by  the  death  of  the  beneficiary  before 
the  death  of  the  assured.     *     *     * 


Lyon,  J.,  in  FOSTER  v.  GILE. 
50  Wis.  603,  605.  —  1880. 

It  was  held  in  Clark  v.  Durand^  12  Wis.  223,  and  again  in  Kerman 
V.  Howard,  23  Wis.  108,  that  a  person  who  procures  a  policy  of 
insurance  on  his  own  life  for  the  benefit  of  another,  and  pays  the 
premiums  thereon,  may  dispose  of  it,  by  will  or  otherwise,  to  the 
exclusion  of  the  beneficiary  named  in  the  policy.  The  opposite 
doctrine  was  held  in  a  very  late  case  in  Minnesota,  Ricker  v.  Charter 
Oak  Life  Ins.  Co.,  [27  Minn.  193]  6  N.  W.  Rep.  771,  and  the  opinion 
of  the  court  seems  to  be  fortified  with  authorities.  However,  until 
the  Legislature  enacts  otherwise,  the  rule  of  Clark  v.  Diirand  and 
Kerman  v.  Howard  must  be  adhered  to  by  this  court.     *     *     * 

Did  the  death  of  the  beneficiaries,'  their  father  surviving  them, 
of  itself  abrogate  the  stipulation  making  the  insurance  money  pay- 
able as  therein  prescribed?  If  such  was  the  legal  effect  of  the  death 
of  the  beneficiaries,  undoubtedly  the  proceeds  of  the  policy  are  a 
part  of  the  estate  of  Walter  H.  Ballou,  and  should  be  awarded  to 
his  administrator,  the  appellant.  The  solution  of  this  question 
requires  a  consideration  of  the  relations  of  the  beneficiaries  to  the 
policy,  and  their  interest  (if  they  have  any)  in  it. 

In  the  Minnesota  case,  above  cited,  it  was  held  that  the  taking  of 
the  policy  payable  to  the  beneficiaries  was  an  irrevocable  and  exe- 
cuted voluntary  settlement  upon  the  beneficiaries,  and  that  the 
latter  had  an  absolute  vested  interest  in  the  proceeds  of  the  policy, 
which  could  only  be  divested  with  their  consent.  This  is  an  extreme 
view,  and  is  in  conflict  with  our  own  cases.  On  the  other  hand,  it  was 
said  in  Clark  v.  Durand,  supra,  that  the  beneficiary  has  no  present 
beneficial  interest,  no  vested  right,  in  the  policy  or  the  moneys 
agreed  therein  to  be  paid;  and  it  must  be  conceded  that  the  judg- 
ment in  that  case  was  placed  upon  the  ground  that  during  the  life- 
time of  the  insured  the  party  beneficially  interested  had  no  actual 
equitable   interest   therein.      This,  also,  is   an  extreme  view   in  the 

'  Walter  Ballou,  the  father,  took  out  the  policy  upon  his  own  life,  payable  to 
his  two  minor  sons,  "  their  guardians,  executors,  administrators  or  assigns," 


372  LIMITS   OV  THE   CONTRACTUAL   OBLIGATION. 

opposite  direction  to  the  Minnesota  case.  Of  course,  we  cannot 
adopt  the  doctrine  of  the  Minnesota  case  to  its  full  extent;  for,  as 
already  observed,  it  overturns  Clark  v.  Durand  and  Kennan  v. 
Howard.  But  if  there  is  any  middle  ground  upon  which  the  judg- 
ments in  these  cases  may  rest,  and  which  commends  itself  as  more 
reasonable  and  just,  it  ought  to  be  adopted.  We  believe  there  is 
such  ground,  and  we  feel  at  liberty  to  adopt  it.  Notwithstanding 
what  was  said  in  Clark  v.  Durand.,  we  ttiink  the  taking  of  the  policy 
by  the  insured,  payable  to  another,  is  so  far  in  the  nature  of  an 
executed  voluntary  settlement  tliat  it  vests  in  the  person  to  whom 
the  insurance  money  is  made  payable  an  actual  subsisting  interest 
in  the  policy,  but  not  the  absolute,  unco  iditional  ownership  of  it, 
and  of  the  moneys  therein  agreed  to  be  paid.  The  interest  of  the 
beneficiary  is  subject  to  the  right  of  the  insured,  who  has  paid  the 
premiums,  to  revoke  the  same  and  retain  it  himself  or  vest  it  else- 
where. At  least,  he  may  do  this  with  the  consent  of  the  company 
which  issued  the  policy.     *     *     *  > 

We  conclude  that,  under  the  circumstances  of  the  case,  the  bene- 
ficial interest  of  the  children  under  the  policy  did  not  lapse  by  their 
death  (their  father  surviving  them),  but  goes  to  their  administrator 
to  be  distributed  as  intestate  estate  of  such  children,  and  that  the 
court  properly  awarded  the  proceeds  of  the  policy  to  him. 

The  judgment  of  the  Circuit  Court  must  therefore  be  affirmed. 


GLENN  V.  BURNS. 

loo  Tenn.  295.  —1898. 

Beard,  J. — In  1869,  M.  Burns,  Sr.,  took  out  two  policies  of 
insurance  on  his  own  life  of  the  respective  amounts  of  $10,000  and 
$5,000.  In  the  policies  it  was  provided  that  this  insurance  should 
be  paid  to  his  wife,  Margaret,  if  living  at  the  time  of  his  death; 
but,  in  the  event  she  should  die  before  his  decease,  then  "  to  their 
children,  for  their  use,  or  to  their  guardian,  if  under  age."  At  the 
date  of  their  issuance  Mr.  and  Mrs.  Burns  had  nine  living  children, 
three  of  whom  died  before  their  mother.     In  1885  she  died,  leaving 


'  The  effect  of  the  application  of  this  rule  to  the  present  case  was  to  hoH  that 
while  the  assured  was  free  to  change  Ihe  beneficiaries,  still  they  had  such  a 
vested  present  interest  in  the  policy  that  their  interest  did  not  lapse,  upon  their 
predeceasing  the  assured,  if  the  assured  had  not  changed  the  beneficiaries  before 
his  death.  The  personal  representatives  of  the  beneficiaries  were  entitled  to 
the  proceeds  of  the  policy. 


BENEFICIARIES.  373 

surviving  her  husband  and  six  children.  Upon  the  death  of  Mr. 
Burns,  which  occurred  several  years  thereafter,  the  insurance  was 
paid  to  the  complainant  Glenn,  when,  a  controversy  having  arisen 
as  to  a  proper  distribution  thereof,  this  bill  of  interpleader  was  filed. 
The  record  presents  a  single  question,  and  that  is,  did  the  children 
of  Mr.  and  Mrs.  Burns  take  each  an  interest  in  these  policies, 
immediately  upon  their  delivery,  and,  if  so,  were  the  interests  of 
the  three  whose  deaths  antedate  that  of  the  mother  transmitted  to 
their  distributees  and  representatives  ?  This  question  seems  first 
to  have  been  considered  by  the  Supreme  Court  of  Connecticut  in  the 
case  of  The  Continental  Life  Insurance  Co.  v.  Palmer.^  42  Conn.  60, 
upon  a  policy  similar  in  its  provisions  to  those  issued  to  Mr.  Burns, 
and  in  a  controversy  between  the  representative  of  a  child  which  pre- 
deceased its  mother  and  children  who  survived  both  the  mother  and 
father.  That  court,  in  an  able  and  exhaustive  opinion,  held  that  each 
child,  upon  the  delivery  of  the  policy,  took  a  transmissible  interest  in 
it ;  and  that,  the  mother  having  died  before  the  father,  at  his  death  the 
distributee  of  the  dead  child  stood  in  the  place  of  its  parent,  and 
was  entitled  to  share  with  the  living  children  in  the  insurance  fund. 
On  this  point  the  court  said:  "  The  moment  this  policy  was  exe- 
cuted and  delivered,  it  became  property,  and  the  title  to  it  vested 
in  some  one.  It  will  not  be  claimed  that  it  vested  in  the  person 
whose  life  was  insured.  It  must  have  vested,  then,  in  all  or  in  a 
part  of  the  payees.  The  payees  consist  of  two  parties,  the  wife  and 
the  children.  As  only  one  could  take  and  enjoy  the  property  ulti- 
mately, it  did  not  vest  m  all  as  tenants  in  common,  nor  did  it  vest 
in  either  so  as  to  give  a  right  to  the  present  enjoyment  of  it.  It 
was  not,  however,  a  mere  expectancy,  nor  a  naked  possibility, 
but  it  was  a  possibility,  coupled  with,  a  present  interest.  It  was 
visible,  tangible  property,  and,  like  any  other  insurance  policy, 
it  was  capable  of  assignment,  and  had  an  appreciable  value. 
Each  ^arty  took  a  conditional,  not  an  absolute,  right  to  the 
whole  policy.  It  was  not  a  condition  precedent,  but  subse- 
quent. *  *  *  T\it  right  to  the  policy,  in  a  strict  sense,  was  not 
contingent;  the  possession  and  enjoyment  of  the  fund  thereby 
created  were  postponed  to  the  future,  and  were  contingent.  This 
contingency  applied  to  both  parties,  — to  the  wife  as  well  as  to  the 
children,  *  *  *  in  respect  to  each  it  was  then  a  present  right 
to  the  future  enjoyment  of  property,  but  it  was  liable  to  be  defeated 
by  a  subsequent  contingency,  and  was  certain  to  be  defeated  as  to 
one  of  them.  That  such  a  right  is  recognized  as  property,  and  is 
transmissible  :o  heirs,  is  a  proposition  abundantly  sustained  by  the 
authorities."    This  rule,  thus  announced,  and  enforced  with  so  much 


374  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

vigor  of  statement,  has  been  adopted,  eitlier  upon  the  authority  of 
that  case  or  else  upon  considerations  of  a  similar  character,  in  Estate 
of  Conrad,  89  Iowa,  396.  56  N.  W.  535 ;  Suggs  v.  Hooker,  102  N.  C.  115, 
8  S.  E.  919;  Ciinniiighatn  v.  Smith,  79  N.  C.  303.  On  the  other 
han'd,  the  Stprenie  Court  of  New  York  rejects  this  view,  and  applies 
the  class  doctrine  to  such  policies,  so  that  under  the  rule  there 
recognized  only  such  children  take  as  are  alive  at  the  death  of  the 
insured.  United  States  Trust  Co.  v.  Mutual  Ben.  Life  In.  Co.,  115 
N.  Y.  152,  21  N.  E.  1025;  Walsh  v.  Insurance  Co.,  133  N.  Y.  408, 
31  N.  E.  228.  In  this  latter  case  the  justices  of  the  general  term 
in  distributing  the  proceeds  of  such  a  policy  had  applied  the  Con- 
necticut rule,  but  on  appeal  their  judgment  was  reversed,  and  the 
"  class  doctrine  "  was  adhered  to;  evidently  on  the  ground  of  stare 
decisis.  In  delivering  the  opinion  of  the  Supreme  Court,  we  think 
Justice  Gray,  in  reply  to  a  strong  argument  at  the  bar  against  tb.e 
application  of  this  doctrine  to  such  a  contract,  clearly  indicates  the 
court's  dissatisfaction  with  it  in  the  following  words:  "  If  we  were 
at  liberty  to  treat  this  question  at  first  hand,  and  as  altogether  an 
original  one  in  this  court,  I  should  say  that  the  arguments  to  sustain 
the  judgment  of  the  general  term  are  cogent,  and  not  easily  over- 
come. Certainly,  they  have  a  moral  support  in  equitable  consider- 
ations. >  But  if  we  are  to  be  guided,  in  the  disposition  of  the  cases 
which  come  before  us,  by  the  principle  of  stare  decisis,  then  we  must 
adhere  to  views  which  have  been  held  and  assented  to  within  recent 
decisions."  The  Supreme  Court  of  Alabama  in  Continental  L.  Insur- 
ance Co.  v.  Webb,  54  Ala.  688,  coincides  with  New  York  in  the  applica- 
tion of  the  class  doctrine  to  such  a  policy;  but  both  courts  agree 
that  on  the  delivery  of  the  policy  the  children  then  alive  have  a 
contingent  interest  in  it,  yet  they  also  agree  in  holding  it  nontrans- 
missible.  We  think  the  view  of  the  Supreme  Court  of  Connecticut 
is  supported  by  the  better  reason,  as  well  as  the  weight  of  authority. 
For  when  it  is  conceded  that  the  then  living  children  have  such  an 
interest,  this  is  necessarily  a  property  right,  though  subject  to  be 
defeated  or  destroyed  by  the  contingency  of  the  mother  (the  assured) 
outliving  the  father  (the  insured);  in  other  words,  by  a  condition 
subsequent.  If  property,  it  was  none  the  less  alienable,  however 
much  its  value  was  affected,  because  contingent;  and,  if  alienable, 
certainly  it  was  transmissible.  That  such  an  interest  is  the  subject 
of  disposition,  as  other  property,  we  think,  is  well  established. 
[Here  follow  extracts  from  Washburn  on  Real  Property,  5th  ed.,  vol. 
2,  p.  611;  Jarman  on  Wills,  vol.  2,  p.  479;  Ins.  Co.  v.  Palmer,  42 
Conn.  60;  Eeadx.  Mosby,  87  Tenn.  759.]  We  are  satisfied  to  adopt 
the  rule  as  announced  by  the  Supreme   Court  of  Connecticut,  not 


BENEFICIARIES.  375 

only  because  we  regard  it  as  sustained  "  by  the  weight  of  authority  " 
{see  editorial  note  to  Estate  of  Conrad^  supra,  48  Am.  St.  Rep. 
396),  but  because  in  this  case,  as  well  as  in  all  similar  cases,  it 
produces  results  which  may  be  reasonably  assumed  to  have  been 
within  the  contemplation  of  the  parent,  who  secures  and  carries  the 
policies  of  life  insurance.  In  the  present  case  no  reason  has  been, 
and  we  think  none  can  be,  assigned,  why  Mr.  Burns,  the  father,  in 
taking  out  the  policies,  and  making  in  them  a  contingent  provision 
for  his  children,  would  have  desired  or  intended  to  devolve  their 
proceeds  upon  his  surviving  children,  to  the  exclusion  of  the  dis- 
tributees of  others  of  that  class  who  might  die  before  the  contin- 
gency occurred.  It  is  a  natural  presumption,  growing  out  of  the 
relation  of  the  parties,  and  strengthened  by  equitable  considerations, 
that  he  assumed  in  the  event  of  such  an  emergency  the  statute  of 
distributions  would  be  resorted  to  for  the  protection  of  the  interest 
of  those  who  stood  in  the  room  and  stead  of  the  dead  child  or 
children. 


PULLIS  V.  ROBISON. 

73  Mo.  201.  —  1880. 

Norton,  J.  — This  is  a  proceeding  in  the  nature  of  a  creditor's 
bill,  instituted  by  certain  creditors  of  James  P.  Robison,  deceased, 
whose  claims  had  been  allowed  by  the  Probate  Court  against  his 
estate,  to  subject  to  the  payment  of  said  debts  the  proceeds  of  cer- 
tain policies  of  insurance  taken  out  on  the  life  of  said  Robison, 
and  made  payable  to  his  wife.  The  creditors  suing  are  three  in 
number,  and  each  having  brought  a  separate  action,  the  three  suits 
were  consolidated  and  tried  together.  Three  of  the  policies,  the 
proceeds  of  which  constitute  the  subject-matter  of  controversy, 
were  issued  by  the  Mutual  Benefit  Life  Insurance  Company,  each  of 
them  being  for  $5,000,  and  dated  respectively  February  26th,  1867, 
February  21st,  1868,  and  May  12th,  1870.  The  amount  of  the 
annual  premiums  was  as  follows:  $283  on  the  one  dated  in  1867, 
$263  on  the  one  dated  in  1868,  and  $289  on  the  one  issued  in  1870. 
The  plaintiffs  claim  and  allege  in  their  bill  that  Robison  was  in 
embarrassed  circumstances,  and  at  the  time  the  premiums  were  paid 
he  was  insolvent,  and  that  said  policies  were  donated  to  his  wife, 
and  were  procured  for  the  purpose  of  hindering,  delaying  and 
defrauding  creditors.  Defendant,  Mrs.  Henrietta  Robison,  to 
whom  said  policies  were  made  payable,  denies  all  the  allegations  of 
the  bill,  and  asserts  her  right  to  the  proceeds  of  the  same. 


376  LIMITS    OF    THE    CONTRACTUAL   OBLIGATION. 

Upon  the  trial  of  the  issues  thus  tendered,  the  court  found  that 
Robison  was  solvent  at  the  time  said  policies  were  taken  out,  and 
remained  solvent  till  about  the  year  1876;  that  the  payment  of  the 
two  last  premiums  on  two  of  said  policies,  amounting  to  $342.05, 
dated  respectively  in  1S67  and  1868,  which  payment  occurred  in 
1S76,  was  made  by  Robison  while  he  was  insolvent,  and  that  all 
payments  of  premiums  anterior  to  1876  were  made  by  him  when  he 
was  solvent.  Upon  this  finding  the  court  decreed  that  Mrs.  Robi- 
son was  entitled  to  the  proceeds  of  the  policies,  less  the  amount  of 
premiums  paid  by  Robison  when  insolvent,  with  the  interest 
thereon,  and  also  decreed  that  Mr.  Pullis,  the  plaintiff  who  first 
brought  suit,  was  entitled  to  the  whole  amount  of  the  premium  paid 
in  1876  with  its  interest.  From  this  judgment  plaintiffs  appealed 
to  the  St.  Louis  Court  of  Appeals,  where  the  judgment  was  afifirmed, 
and  from  this  judgment  they  appealed  to  this  court. 

The  evidence  adduced  on  the  trial,  we  think,  was  sufficient  to 
justify  the  trial  court  in  finding  the  facts  above  set  forth,  and  we 
will,  therefore,  accept  its  finding  as  correct,  and  thus  accepting  it, 
the  question  presented  for  our  determination  is,  whether,  on  the 
facts,  the  court  in  its  decree  properly  disposed  of  the  funds  in  dis- 
pute. Plaintiffs  insist  that  error  was  committed  in  this  respect,  and 
contend  that  the  premiums  paid  by  Robison  in  1876,  being  in 
excess  of  the  sum  of  $300,  and  having  been  paid  while  he  was  insol- 
vent, out  of  funds  which  ought  to  have  been  appropriated  to  the 
payment  of  his  debts,  entitles  them  to  so  much  of  the  proceeds  of 
tiie  policies  as  may  be  necessary  to  satisfy  in  full  their  claims  as 
creditors,  even  though  it  should  consume  it  all. 

We  think  it  settled  that  the  wife  has  such  an  interest  in  the  life 
of  her  husband  as  to  make  valid  an  insurance  effected  on  his  life  for 
her  benefit.  This  has  been  so  held  in  the  case  of  Gambs  v.  Covenant 
Mutual  Life  Ins.  Co..,  50  Mo.  44.  AVe  think  it  also  settled  that  when 
such  a  policy  issues  and  e.xpressly  designates  a  person  who  is 
to  receive  the  insurance  money,  such  designation  .s  conclusive 
unless  some  question  arises  as  to  the  right  of  creditors  of  the  per- 
son who  paid  the  premiums.  "  The  receipt  of  the  designated  per- 
son will  discharge  the  company,  and  such  person  will  be  entitled  to 
maintain  an  action  against  the  company."  Bliss,  Life  Ins.,  §  317. 
We  think  it  also  settled  that  a  husband  who  is  solvent  has  the  right 
to  effect  an  insurance  on  his  life  for  the  benefit  of  his  wife,  and  to 
pay  the  annual  premiums  thereon  so  long  as  he  remains  solvent  and 
can  do  so  without  prejudice  to,  or  in  fraud  of,  the  rights  of  credit- 
ors. Larkin  v.  McMullin.,  49  Pa.  St.  29.  To  what  extent,  if  to 
any  extent,  the  husband  can  affect  the  rights  of  the  wife  in  such  a 


BENEFICIARIES.  377 

policy,  by  an  assignment  or  other  disposition  of  it,  is  a  question 
which  does  not  arise  in  this  case,  and  we  have,  therefore,  deemed 
it  unnecessary  to  notice  the  numerous  authorities  cited  by  counsel 
bearing  on  that  point. 

The  interest  of  the  wife  in  a  policy  of  insurance  on  the  life  of  her 
husband,  effected  for  her  benefit  by  the  husband  while  in  unembar- 
rassed circumstances,  and  fully  able  to  discharge  all  his  indebted- 
ness, is  not  affected,  as  plaintiffs  contend  it  is,  by  section  15, 
Wagner's  Statutes,  936,  if  the  husband  remains  solvent  during  the 
time  the  policy  is  kept  alive  by  his  paying  the  annual  premiums. 
That  section  provides  that  a  married  woman  may  cause  to  be  issued 
for  her  sole  use  a  policy  of  insurance  on  the  life  of  her  husband, 
and  in  case  she  survives  him,  that  the  insurance  money  shall  be 
payable  to  her,  free  from  the  claims  of  the  representatives  of  her 
husband,  or  of  any  of  his  creditors,  but  such  exemption  shall  not 
apply  when  the  amount  of  premiums  annually  paid  shall  exceed 
$300.'  We  do  not  think  this  statute  can  be  so  interpreted  as  to 
curtail  or  restrict  the  right  of  a  solvent  husband  to  apply  only  $300 
of  his  means  annually  to  the  payment  of  premiums  on  his  life  policy 
procured  for  the  benefit  of  his  wife.     *     *     * 

We  think  it  was  the  purpose  of  the  statute  to  allow  a  husband 
who  might  be  in  an  embarrassed  and  even  in  an  insolvent  condition 
to  secure  to  the  wife  the  benefit  of  an  insurance  on  his  life  free  from 
the  claims  of  creditors  when  the  annual  premium  on  such  policy 
does  not  exceed  $300;  or,  in  other  words,  that  he  might  annually 
withdraw  for  such  a  purpose  that  sum  without  subjecting  the  amount 
insured  to  the  payment  of  creditors.  Previous  to  the  enactment  of 
the  statute,  an  insolvent  husband  could  not  apply  any  portion  of  his 
means  to  such  a  purpose,  and  deprive  creditors  of  the  right  of 
asserting  their  claims  to  all  the  benefits  resulting  from  such  appli- 
cation. The  object  of  the  statute,  in  our  opinion,  was  to  change 
this  rule  to  the  extent  indicated  in  the  act.  It  follows  from  the 
view  we  have  taken  that  inasmuch  as  all  the  premiums  paid  by 
Robison,  except  the  sum  of  $343  paid  in  February,  1876.  were  paid 
while  he  was  solvent,  Mrs.  Robison  is  entitled  to  the  benefits  result- 
ing therefrom,  and  that  the  last  payment  being  in  excess  of  $300, 
and  made  while  Robison  was  insolvent,  should  go  to  the  benefit  of 
the  plaintiffs. 

It  is  insisted,  by  counsel,  that  inasmuch  as  the  payment  made  in 
1876  kept  the  policies  on  foot  and  gave  them  vitality,  the  whole 
amount  of  the  insurance  money,  or  so  much  thereof  as  will  be  sufifi- 

'  Similar  statutes  exist  in  several  States. 


37^"^  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

cient  to  satisfy  their  debts,  should  be  so  applied.  We  have  not 
been  cited  to,  nor  have  we  been  able  to  find  any  authority  that  goes 
to  that  extent,  nor  are  we  acquainted  with  any  equitable  principle 
on  which  the  claim  can  be  founded.  How  the  insurance  money, 
under  the  facts  and  circumstances  of  this  case,  should  be  appor- 
tioned, presents  a  question  of  some  difficulty,  especially  so  as  the 
authorities  we  have  been  able  to  examine  are  conflicting  in  the  rules 
laid  down.  The  case  of  LanJrmn  v.  Knoivles,  22  N.  J.  Eq.  594, 
goes  farther  in  support  of  plaintiffs'  position  than  any  which  has 
fallen  under  our  observation,  and  it  falls  far  short  of  what  is  contended 
for  by  them.  In  that  case  the  wife  insured  the  life  of  her  husband 
for  the  benefit  of  her  children,  and  after  paying  the  annual  premiums 
for  about  ten  years  assigned  the  policy,  in  conjunction  with  her 
husband,  to  one  of  the  husband's  creditors  in  payment  of  the  debt. 
After  said  assignment  the  wife  ceased  to  pay  the  premiums,  but 
they  were  paid  for  about  nine  years  by  the  creditors.  Upon  the 
death  of  the  husband  the  insurance  money  was  claimed  by  the  chil- 
dren on  one  hand,  and  the  assignee  on  the  other,  and  the  chancellor 
decided  that  the  children  were  entitled  to  the  cash  value  of  the 
policy  at  the  time  it  ceased  to  be  kept  alive  by  the  mother,  and  that 
the  residue  of  the  money  due  on  the  policy  should  be  paid  over  to 
the  assignee. 

On  the  other  hand,  in  the  case  of  Trough's  Estate,  8  Phila.  214, 
where  Trough,  having  taken  out  a  policy  on  his  life,  assigned  the 
same,  while  solvent,  to  a  trustee  for  the  benefit  of  his  children,  and 
becoming  insolvent  thereafter,  still  continued  to  pay  the  premiums, 
in  a  contest  for  the  insurance  money  between  the  children  and 
I'rough's  creditors,  the  rule  was  laid  down  that  the  only  claim  the 
creditors  could  sustain  would  be  the  amount  of  the  premiums  paid 
by  Trough  to  keep  the  policy  alive  after  he  became  insolvent.' 

The  object  of  such  rules  being  to  do  exact  justice  between  the 
contending  parties  and  to  distribute  the  fund  according  to  their 
rights,  it  appears  to  us  that  neither  of  the  above  rules  accomplishes 
the  object;  and  inasmuch  as  the  insurance  money  in  contest  in  this 
case  was  the  product  of  all  the  premiums  paid,  we  think  a  just  dis- 
tribution of  it  would  be  obtained  by  declaring  that  Mrs.  Robison 
should  be  decreed  to  have  so  much  of  the  fund  as  was  produced  by 
the  payment  of  the  premiums  by  her  husband  when  solvent,  and 
plaintiffs  so  much  as  the  premiums  paid  by  Robison  when  insolvent 


'  In  this  case,  on  appeal  (75  Pa.  St.  115),  the  decree  was  reversed  on  the  ground 
that  the  assignment  to  the  trustee  operated  neither  as  an  e.\ecuted  gift  nor  as 
the  creation  of  a  valid  trust. 


BENEFICIARIES.  379 

contributed  to  produce;  that  is,  that  plaintiffs  are  entitled  to 
recover  the  same  proportional  part  of  the.  whole  insurance  money 
that  the  premiums  paid  b}'  Robison  when  insolvent  bear  to  the 
premiums  paid  by  him  when  solvent.  Giving  effect  to  this  rule  in 
the  disposition  of  the  case,  and  accepting  the  fact  found  by  the 
court  that  Robison,  after  his  insolvency,  paid  $342.05  as  being  cor- 
rectly found,  and  the  further  fact,  as  shown  by  the  record,  that 
Robison  had  paid  on  two  of  said  policies  during  his  solvency 
premiums  amounting  to  $4,650,  plaintiffs  would  be  entitled  to 
recover  the  sum  of  $686.84,  and  Mrs.  Robison  the  residue.' 

As  plaintiff  Pallis  in  the  race  of  diligence  was  the  first  to  file  his 
bill,  asking  an  appropriation  of  the  fund  to  the  payment  of  his 
demand,  he  has  obtained  a  priority  over  the  other  creditors,  and 
the  said  sum  of  $686.84  should  be  applied  on  his  debt.  George  v. 
Williamson.,  26  Mo.  193.  The  judgment  will  be  reversed  and  cause 
remanded,  with  directions  to  the  Circuit  Court  to  enter  up  a  decree 
in  conformity  with  this  opinion,  directing  the  receiver  in  whose 
hands  the  fund  has  been  placed,  to  pay  first  the  costs  of  the  suit, 
next  the  sum  of  $686  84  to  plaintiff  Pullis,  and  next  the  residue  to 
defendant,  Mrs.  Robison.     All  the  judges  concur.^ 

'  "  From  the  fact  that  frequently  many  years  elapse  between  the  issuing  of  a 
policy  and  the  time  when  the  insurance  falls  due,  it  may  often  happen  that  the 
insured,  though  solvent  when  the  policy  was  issued,  has  paid  some  of  the  latter 
premiums  when  insolvent.  In  that  case  the  proper  distribution  of  the  proceeds 
would  depend  on  the  view  taken  by  the  court  of  the  nature  of  a  policy  of  insur- 
ance. By  some  couris  it  is  held  that  each  premium  is  a  portion  of  the  consider- 
ation for  which  the  company  promises  Xo  pay  the  amount  of  the  insurance.  If 
that  view  be  taken  the  creditors  would  be  entitled  to  such  a  proportion  of  it  as 
the  amount,  with  interest,  of  the  premiums  paid  by  the  insured  when  insolvent 
bears  to  the  whole  amoani  of  the  premiums  with  interest.  Pullis  v.  Robison, 
73  Mo.  2or.  The  more  usual  doctrine,  and  that  held  by  the  Supreme  Court 
of  the  United  States  {Central Bank  v.  Hume,  128  U.  S.  195),  is  that  the  payment  of 
the  first  premium  alone  is  the  consideration  of  the  contract  and  that  payment  of 
the  subsequent  premiums  is  merely  a  condition.  Under  that  view,  creditors 
would  be  confined  to  the  recovery  of  the  premiums  paid  by  the  insured  after  he 
became  insolvent,  with  interest;  since  those  premiums  did  not  form  the  con- 
sideration for  the  policy,  and  therefore  payment  of  them  can  give  no  other  right 
than  an  equitable  lien  for  the  amount  paid  in  fraud  of  creditors.  The  bene- 
ficiaries named  in  the  policy  would  be  entitled  to  the  rest.  In  re  Bear  v.  Stein- 
berg, II  N".  B.  R.  46."  —  Prof.  Williston  in  25  Am.  Law  Rev.,  pp.  196-197. 

'  Contra,  Central  Bank  v.  Hume,  128  U.  S.  195,  holding  that  the  proceeds  of  a 
life  policy  taken  out  by  an  insolvent  debtor  in  his  wife's  name,  cannot  be  reached 
by  his  creditors  after  his  death,  nor  can  the  amount  paid  in  premiums  by  the 
insolvent  debtor  be  recovered  b>  the  creditors;  the  widow  being  entitled  to  the 
whole.  The  case  is  severely  criticised  by  Prof.  Williston  in  25  Amcr.  Laiv  Rev. 
185,    reviewing   the    English  and    American  authorities.      He    summarizes    the 


38o  LIMITS    OF   THE   CONTRACTUAL   OBLIGATION. 

opinion  of  ihe  court  as  follows:  "  Chief  Justice  Fuilei  delivered  the  opinion  of 
the  court.  He  admits  that  a  voluntary  assignment  of  a  policy  of  insurance, 
effected  by  an  insolvent  in  favor  of  his  executors  coald  not  be  sustained  under 
the  statute  of  13  Eliz.,  c.  5,  but  he  adds,  the  rule  applies  only  to  what  the  cred- 
itor could  have  made  available  for  the  payment  of  his  debts,  whereas  these  pol- 
icies of  insurance  were  made  directly  to  the  wife  and  Mr.  Hume  could  exercise 
no  control  over  them.  The  conclusion  is,  therefore,  drawn  that  at  any  rate 
the  creditors  could  not  claim  the  whole  proceeds  of  the  policies,  and  the  question 
is  then  examined  whether  the  creditors  were  entitled  to  a  return  of  the  premi- 
ums. The  question  is  answered  in  the  negative.  It  is  hinted  that  perhaps  the 
fact  that  Hume  was  largely  indebted  to  his  moiher-in-lavv  and  that  the  money 
received  from  her  was  to  have  been  used  for  the  benefit  of  his  family,  or  the 
laws  of  the  States  where  the  insurance  companies  were  formed,  might  perhaps 
affect  the  question;  but  these  points  are  waived,  the  court  preferring  to  rest  the 
decision  broadly  on  the  following  basis.  '  The  argument  in  the  interest  of 
creditors  concedes  that  the  debtor  may  rightfully  preserve  his  family  from 
suffering  and  want.  It  seems  to  us  that  the  same  public  policy  which  justifies 
this,  and  recognizes  the  support  of  wife  and  children  as  a  positive  obligation  in 
law  as  well  as  morals,  should  be  extended  to  protect  them  from  destitution  after 
the  debtor's  death,  by  permitting  him  not  to  accumulate  a  fund  as  a  permanent 
provision,  but  to  devote  a  moderate  portion  of  his  earnings  to  keep  on  foot  a 
security  for  support  already,  or  which  could  thereby  be,  lawfully  obtained,  at 
least  to  the  extent  of  requiring  that  under  such  circumstances  the  fraudulent 
intent  of  both  parties  to  the  transaction  should  be  made  out.  And  inasmuch 
as  there  is  no  evidence  from  which  such  intent  on  the  part  of  .Mrs.  Hume  or 
the  insurance  companies  could  be  inferred,  in  our  judgment  none  of  these  pre- 
miums can  be  recovered.'  " 

Professor  Williston  says  in  conclusion:  "  It  is  not  intended  to  find  fault  with 
the  statutory  provisions  allowing  an  insolvent  debtor  to  insure  his  life  for  the 
benefit  of  those  dependent  upon  him.  It  may  well  be  that  such  a  pjj  y  15  bet- 
ter for  society  than  to  require  all  assets  of  every  kind  to  be  given  jp  i;-  cred- 
itors. What  is  insisted  upon  is  this,  that  by  the  common  law  as  brought  to  this 
country,  no  exceptions  were  made  to  the  sweeping  rule  that  an  insolvent  debtor 
could  not,  in  any  way,  convey  his  properly  to  a  volunteer,  so  as  to  free  it  from 
the  claim  of  creditors.  The  statutes  themselves  above  referred  to  are  an 
admission  of  this,  for  if  the  law  without  the  statutes  were  not  what  is  contended, 
why  pass  the  statutes?  If,  now,  the  sentiment  is  right  and  just  that  a  man 
should  make  provision  —  to  some  extent  at  least — for  those  dependent  upon 
him,  before  paying  his  debts,  and  if  that  sentiment  exists  among  a  majority  of 
the  people,  it  should  find  expression  in  statute,  and  the  extent  of  the  right 
should  so  be  properly  defined.  Till  then  the  rule  of  the  common  law  should 
prevail  and  the  courts,  uninfluenced  by  considerations  of  '  meritoriousness  ' 
which  are  for  the  Legislature  to  consider,  should  enforce  the  law." 


Right  of  the  Beneficiary  to  Sue.— The  well  established  right  of  a  beneficiary 
to  sue  upon  a  life  insurance  policy  does  not  seem  to  have  been  judicially  dis- 
cussed in  relation  to  the  larger  question  as  to  the  right  of  a  third  person  to  sue 
upon  a  contract  made  for  his  benefit.  In  most  American  jurisdictions  such 
third  person  can  sue.      In  Massichusetts,  on  the  contrary,  he  cannot;   neverihe- 


BENEFICIARIES.  381 

c.  Mutual  Benefit  Insurance. 
SUPREME  CONCLAVE,  ROYAL  ADELPHL\  v.  CAPPELLA 

ET    AL. 

41  Fed.  Rep.  i,  (Circuit  Ct.  E.  D.  Mich.)  —  i8qo. 

In  Equity.  This  was  a  bill  of  interpleader  to  settle  the  title  to  a 
certain  benefit  certificate  issued  by  the  plaintiff  to  Leo  F.  Kratzsch, 
a  member  of  Carpenter  Conclave,  No.  17,  Royal  Adelphia,  located 

less  in  that  jurisdiction  the  beneficiary  of  a  life  insurance  contract  can  sue;  the 
taking  out  of  such  a  policy  being  deemed  a  declaration  of  trust,  though  the  bene- 
ficiary is  allowed  to  proceed  at  law.  Pingiey  v.  Ins.  Co.,  114  Mass.  374,  {ante-. 
p.2,t>'],note  )  The  effect  of  most  of  the  decisions  seems  to  be  that  the  insured 
through  the  operation  of  the  contract  with  the  insurers  creates  a  res  in  the 
nature  of  property  which  thenceforward  belongs  to  the  beneficiary.  In  Richer 
V.  Co.,  27  Minn.  193,  the  court  describes  as  follows  the  transaction  and  its  e.Tect, 
where  one  takes  out  a  policy  on  his  own  life  and  makes  the  amount  payable  tii 
a  beneficiary:  "  What  be  [the  insured]  did  was  a  '  clear  and  distinct  act,' 
wholly  divesting  himself  of  all  ownership  or  control  over  the  money  paid  for  the 
insurance,  disclaiming  any  interest  in  the  policy,  or  intention  to  take  or  hold  it 
for  himself  or  his  legal  representatives,  at  the  same  time  putting  it  beyond  his 
powerso  to  do  by  the  stipulation  obligating  the  company  to  pay  the  sum  insured, 
whenever  it  should  become  due,  to  such  of  the  persons  named  in  the  policy  as 
might  then  be  entitled  thereto  by  its  terms.  Taking  the  delivery  of  the  policy 
from  the  company,  under  these  circumstances,  can  only  be  construed  as  an  act 
of  acceptance  for  the  designated  beneficiaries,  and  his  subsequent  holding  of 
the  same  as  that  of  a  naked  depositary,  without  any  interest,  for  those  entitled 
thereto.  *  *  *  As  the  insured  had  no  legal  or  equitable  interest  in  the  policy 
at  the  time  of  its  surrender  and  cancellation  the  act  was  a  nullity  and  could 
not  affect  the  rights  of  his  children,  to  whom  it  then  belonged,  and  who  alone 
could  release  the  company  from  the  obligations  it  contained." 

The  situation  may,  perhaps,  be  assimilated  to  that  in  M' Carty  v.  Blevins,  5 
Yerg.  ig5,  where  Rogers  agreed  with  Buler  that  his  horse  should  go  to  the 
mare  of  Bufer  without  pay,  provided  the  produce  should  be  the  property  of 
Blevins;  and  it  v/as  held  that  the  pioperty  in  the  produce  of  the  mare  wa'j 
vested  by  the  contract  in  Blivens  and  that  he  could  recover  the  colt  from  one 
who  had  purchased  it  from  Buler. 

Killing  of  the  Assured  by  the  Beneficiary. — "  The  only  question  of  l.iw 
presented  in  this  record  is,  does  an  insane  beneficiary  in  a  life  insurance  policy, 
who  kills  the  insured  under  such  circumstances  as  would  cause  the  killing  to 
be  murder  if  the  beneficiary  were  sane,  thereby  forfeit  his  right  to  recover  the 
insurance  money?  This  presents  a  question  of  first  impression.  *  *  *  The 
causing  the  death  of  an  assured  by  felonious  means,  by  a  sane  assignee  of  a 
policy  of  life  insurance,  has  been  held  sufficient  to  defeat  a  recovery  on  the 
policy.  New  York  Mutual  Life  Ins.  Co.  v.  Armstrong,  II7  U.  S.  591;  Prince  of 
Wales  Ins.  Co.  v.  Palmer,  25  Beav.  605.  *  *  *  We  hold:  where  an  insane 
beneficiary  in  a  life  policy  kills  the  assured  under  such  circumstances  as  would 
cause  the  killing  to  be  murder  if  the  beneficiary  were  sane,  such  killing  does 
not  cause  a  forfeiture  of  the  policy  nor  bar  his  right  of  recovery  for  the  insur- 
ance money."  —  Holdom  v.  A.  0.  U.   IV.,  159  III.  619. 


382  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

at  Milwaukee,  and  payable  on  its  face  to  defendant  Cappella,  the 
aunt  of  the  insured.  Her  title  to  this  certificate,  however,  was  dis- 
puted by  (iefendant  Julius  Kratzsch,  father  of  the  deceased  member, 
upon  the  following  state  of  facts: 

The  certificate  in  question,  which  was  for  the  sum  of  $3,000,  was 
originally  issued  October  17,  1885,  to  Leo  F.  Kratzsch,  and  made 
payable  to  his  sister  Emma,  in  accordance  with  the  laws  of  the  order, 
one  of  which  provided  as  follows:  "  A  member  may  at  any  time, 
when  in  good  standing,  surrender  his  benefit  certificate,  and  a  new 
one  shall  be  issued,  payable  to  such  beneficiary  or  beneficiaries  as 
such  member  may  direct,  in  compliance  with  the  laws  and  usages  of 
the  order,  and  the  payment  of  a  fee  of  fifty  cents.  Said  surrender 
and  direction  must  be  made  in  writing,  signed  by  the  member,  and 
forwarded  under  the  seal  of  the  subordinate  conclave,  with  the 
benefit  certificate,  to  the  supreme  secretary,"  who  resided  in 
Detroit. 

In  March,  1888,  the  insured  member,  being  then  afflicted  with  a 
pulmonary  disease,  went  to  Florida  for  the  benefit  of  his  health. 
He  returned  in  June  by  the  way  of  St.  Louis,  and  remained  there 
for  about  three  weeks,  at  the  house  of  one  Pesch,  for  whom  his 
aunt.  Miss  Cappella,  was  housekeeper.  His  aunt  took  care  of  him 
during  his  stay,  and  loaned  him  $400;  he  saying  to  her  that  he 
would  "  will  her  the  policy,"  and  that  "  he  wanted  her  to  have  it." 
Soon  after  his  arrival  home,  and  on  June  23d,  he  surrendered  his 
certificate,  and  procured  another  to  be  issued  in  favor  of  the  defend- 
ant Cappella.  In  the  month  of  August,  the  insured,  being  then  at 
the  residence  of  his  father,  the  defendant  Julius  Kratzsch,  about 
thirty-five  miles  from  Milwaukee,  and  in  the  last  stages  of  consump- 
tion, sent  for  the  defendant  Cappella,  who  came  from  St.  Louis, 
where  she  resided,  to  Kratzsch's  house.  There  was  some  dispute 
as  to  what  took  place  there,  but  it  seems  to  have  been  agreed  that 
the  certificate  then  in  force  should  be  surrendered,  and  a  new  one 
issued,  wherein  Miss  Cappella  should  be  made  a  beneficiary  to  the 
extent  of  $1,000,  and  the  defendant  Julius  Kratzsch  to  the  extent 
of  $2,000.  For  the  purpose  of  carrying  out  such  arrangement,  Leo 
made  a  request  in  writing,  directed  to  the  collector  of  Carpenter 
Conclave,  No.  17,  requesting  him  to  cause  his  benefit  certificate  to 
be  changed  in  accordance  with  such  agreement;  which  request  was 
delivered  to  defendant  Cappella  upon  her  promise  to  hand  it, 
together  with  the  fee  of  fifty  cents,  to  the  collector  of  such  conclave, 
to  be  forwarded  to  the  supreme  secretary  at  Detroit.  Miss  Cappella 
also  agreed  to  call  upon  one  Mueller,  at  Milwaukee,  to  whom 
Kratzsch   had   given  the  certificate  then  in  force,  and  procure  such 


BENEFICIARIES.  383 

certificate -from  said  Mueller,  and  deliver  the  same  to  the  collector, 
to  be  surrendered  by  him  to  the  supreme  secretary.  Up  to  this 
time  Miss  Cappella  had  never  been  in  actual  possession  of  the  cer- 
tificate then  in  force.  After  leaving  Kratzsch's  house,  Miss  Cap- 
pella went  to  Milwaukee,  obtained  the  certificate  then  in  force  from 
Mueller,  but  did  not  deliver  the  request  for  the  change  of  the  cer- 
tificate to  the  collector  of  Carpenter  Conclave,  but  retained  posses- 
sion of  the  one  received  of  Mueller.  Upon  returning  to  St  Louis, 
on  the  26th  of  August,  she  addressed  a  letter  to  the  insured  Leo, 
in  which,  speaking  of  the  certificate,  she  said: 

"  I  went  to  Mr.  Eckstein,  and  he  advised  me  not  to  have  it 
changed.  If  anything  would  happen  to  you,  dear  Leo,  while  it  is 
getting  changed,  they  would  not  pay  the  money.  And  he  said  you 
could  not  write  your  name  so  plain  any  more  as  you  used,  and  then 
they  could  make  trouble  through  that.  It  takes  four  or  five  weeks 
to  change  that  policy.  I  think  it  is  best  to  leave  it  the  way  it  is, 
and  I  won't  cheat  your  father  out  of  that  money." 

This  le!;ter,  though  affectionate,  was  not  entirely  satisfactory, 
and,  on  the  14th  of  September,  Leo,  being  then  very  near  his  end, 
signed  and  duly  executed  and  acknowledged  an  instrument  in  writing, 
directed  to  the  supreme  secretary  of  the  plaintiff,  requesting  plaintiff 
to  change  his  certificate  in  accordance  with  his  original  agreement 
with  Miss  Cappella,  and  stating  that  he  could  not  make  an  actual 
surrender  of  the  certificate  then  in  force,  because  the  same  was  in 
possession  of  the  defendant  Cappella.  Tiiis  instrument  was  duly 
attested  by  the  secretary  of  Carpenter  Conclave,  No.  17,  sealed 
with  the  seal  of  the  conclave,  and  on  the  i8th  of  September  delivered 
to  and  received  by  the  supreme  secretary  of  the  plaintiff,  together 
with  the  fee  of  fifty  cents  required  by  the  rules  of  the  order.  On 
the  19th  of  September  the  insured  died  at  the  residence  of  his  father. 
Due  proof  having  been  made  of  his  death,  the  plaintiff  audited  the 
claim  upon  which  it  became  liable,  by  reason  of  his  death,  at  the 
sum  of  $2,910,  being  the  amount  of  the  certificate,  less  the  s^m  of 
$90  paid  prior  to  his  death.  Suits  having  been  begun  by  Miss  Cap- 
pella in  this  court,  and  by  the  defendant  Julius  Kratzsch  in  the 
State  court  at  Milwaukee,  plaintiff  filed  this  bill  of  interpleader  to 
compel  defendants  to  litigate  their  respective  claims  upon  the  fund, 
and  paid  into  court  the  amount  of  the  certificate  as  audited. 

Brown,  J.  —  This  is  one  of  a  class  of  cases  which  have  become 
quite  common  within  the  past  twenty-five  years,  arising  out  of  an 
inexpensive  method  of  insurance,  by  which  persons  in  moderate 
circumstances  may,  by  the  payment  of  a  small  monthly  assessment, 
secure   a   provision  for  themselves  or  their  families  in  case  of  sick- 


384  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

ness,  accident,  or  death.  Much  of  the  law  applicable  to  ordinary 
cases  of  life  insurance  is  equally  applicable  here.  In  a  few  particu- 
lars, however,  it  seems  to  be  somewhat  less  favorable  to  the  person 
for  whose  benefit  the  policy  is  taken  out.  For  instance,  in  case  of 
an  ordinary  policy,  the  right  of  a  person  for  whose  benefit  the  policy 
IS  issued  cannot  be  defeated  by  the  separate  and  joint  acts  of  the 
assured  and  the  company,  without  the  consent  of  the  beneficiary, 
Bliss,  Ins.,  §  318;  while  it  is  entirely  well  settled  that  in  cases  of 
this  description  the  beneficiary  has  no  yested  interest  in  the  benefit 
certificate  until  the  death  of  the  insured  member.  Up  to  this  time 
he  may  change  his  designation  of  beneficiary  at  will,  against  the 
consent  of  such  beneficiary,  even  though  the  latter  may  have 
advanced  the  money  to  pay  the  assessments  upon  the  certificate. 
Bac.  Ben.  Soc,  §  306;  Lament  v.  Association^  30  Fed.  Rep.  817; 
Wendt  V.  Legion  of  Honor ^  72  Iowa,  682,  34  N.  W.  Rep.  470;  Associa- 
tion \.  Monfgo?nery,  38  N.  W.  Rep.  588;  Fisk  v.  Union,  11  Atl.  Rep. 
84;  Hellenberg  v.  District  No.  /,  94  N.  Y.  580;  Society  v,  Burkhart, 
no  Ind.  192,  10  N.  E.  Rep.  79,  and  11  N.  E.  Rep.  449;  Holland  v. 
Taylor,  in  Ind.  121,  12  N.  E.  Rep.  116;  Laniont  v.  Grand  Lodge,  31 
Fed.  Eep.  177;  Schillinger  wBoes,  3  S.  W.  Rep.  427;  Knights  of 
Honor  v.  Watson,  15  Atl.  Rep.  125;  Beatty's  Appeal,  Id  861,  Byrne 
V.  Casey,  70  Texas,  247,  8  S.  W.  Rep.  38. 

In  making  such  change  of  beneficiary,  however,  the  insured  is 
bound  to  do  it  in  the  manner  pointed  out  by  the  policy  and  the 
by-laws  of  the  association,  and  any  material  deviation  from  this 
course  will  invalidate  the  transfer.  Thus,  if  the  certificate  provides 
that  no  assignment  shall  be  valid  unless  approved  by  the  secretary, 
an  assignment  without  such  approval  will  be  invalid.  Harnian  v. 
Leivis,  24  Fed.  Rep.  97,  530.  So,  if  it  be  provided  that  such  change 
must  be  made  on  a  prescribed  foi  m  or  blank,  the  signature  to  which 
shall  be  attested  before  a  notary,  and  the  change  entered  upon  the 
books,  an  assignment  to  a  creditor  as  collateral  security,  not  made 
upon  the  prescribed  blank,  and  of  which  the  association  had  no 
notice  until  after  the  death  of  the  member,  was  held  to  be  fatally 
defective.  Association  v.  Brown,  2,2)  Eed.  Rep.  11.  So,  where  the 
certificate  required  every  surrender  to  be  in  writing,  attested  by  the 
reporter  under  the  lodge  seal,  it  was  held  that  a  conditional  sur- 
render of  the  same  by  the  holder,  not  to  take  effect  until  after  his 
death,  and  not  made  in  the  presence  of  or  attested  by  such  lodge 
reporter,  was  invalid.  Supreme  Lodge  v.  Nairn,  60  Mich.  44,  26  N. 
W.  Rep.  826.  See,  also,  Wendt  v.  Legion  of  Honor,  72  Iowa,  682, 
34  N.  W.  Rep.  470;  Elliott  V.  Whedhee,  94  N.  C.  115;  Mellows  v. 
Mellows,  61   N.  H.  137;  Highland  \.  Highland,   109  111.   366.     So,  if 

• 


BENEFICIARIES.  385 

the  by-lawB  fix  definitely  the  manner  of  changing  the  beneficiary  by 
his  action  during  his  life,  an  attempt  to  divert  the  benefit  by  will 
has  usually  been  held  to  be  abortive.  Holland  v.  Taylor^  iii  Ind. 
121,  12  N.  E.  Rep.  116;  Stephenson  v.  Stephenson^  64  Iowa,  534,  21 
N,  W.  Rep.  19;  Insurance  Co.  v.  Miller.,  13  Bush.  489;  Vollman  s 
Appeal.,  92  Pa.  St.  50:  Renk  v.  Herrman  Lodge.,  2  Dem.  Sur.  409; 
Daniels  v.  Pratt,  143  Mass.  216,  10  N.  E.  Rep.  166. 

There  are,  however,  three  exceptions  to  this  general  rule  requir- 
ing an  exact  conformity  with  the  regulations  of  the  association: 

(i)  If  the  society  has  waived  a  strict  compliance  with  its  own 
rules,  and,  in  pursuance  of  the  request  of  the  insured  to  change  his 
beneficiary,  has  issued  a  new  certificate  to  him,  the  original  bene- 
ficiary will  not  be  heard  to  complain  that  the  course  indicated  by 
the  regulations  was  not  pursued.  This  naturally  follows  from  the 
fact  that,  having  no  vested  interest  in  the  certificate  during  the 
lifetime  of  the  assured,  he  has  no  right  to  require  that  the  rules  of 
the  association,  which  are  framed  alone  for  its  own  protection  and 
guidance,  are  not  complied  with.  Martin  v.  Stubbings.,  126  III  387, 
18  N.  E.  Rep.  657;  Splawn  v.  Chetv,  60  Tex.  532;  Manning  v.  Ancient 
Order.,  5  S.  ^V.  Rep.  385;  Society  v.  Lupoid,  loi  Pa.  St  iii;  Brouni 
v.  Mansus,  5  Atl.  Rep.  768;  Knights  of  Honor  v.  Watson.,  15  Atl. 
Rep.  125;  Byrne  v.  Casey,  70  Tex  247,  8  S.  W.  Rep.  38;  Titsworth 
v.  Titsic'orth,  20  Pac.  Rep.  213.  The  case  of  IFendt  v.  Legion  of 
Honor.,  72  Iowa,  682,  34  N.  W.  Rep.  470,  appears  upon  its  face  to 
lay  down  a  different  rule,  but  upon  examination  it  will  be  seen  that 
the  change  was  attempted  to  be  made  by  a  paper  which  the  insured 
called  his  last  will,  but  which  was  no  will  in  law;  and  the  court  held 
that,  the  interest  of  the  beneficiary  having  becoir.e  vested  by  the 
death  of  the  insured,  they  had  acquired  rights  which  could  not  be 
cutoff,  except  in  the  manner  prescribed  in  the  contract.  This  case, 
evidently,  has  no  application  to  a  change  made  prior  to  the  death 
of  the  insured. 

(2)  If  it  be  beyond  the  power  of  the  insured  to  comply  literally 
with  the  regulations,  a  court  of  equity  will  treat  the  change  as  hav- 
ing been  legally  made.  Thus,  in  the  case  of  Grand  Lodge  v.  Child, 
70  Mich.  163,  the  insured  made  his  betrothed  the  beneficiary, 
and  subsequently  lost  his  certificate.  His  beneficiary  having  mar- 
ried another,  he  made  a  statement  of  the  loss,  and  applied  for  a 
reissue  of  the  certificate,  making  his  son  the  beneficiary.  His 
application  was  refused.  The  rules  of  the  organization  required 
the  change  to  be  indorsed  on  the  original  certificate,  but,  by  the 
advice  of  the  oflicers,  he  attempted  to  make  the  change  of  bene- 
ficiary by  giving  a  power  of  attorney  to  another  to  collect  the  amount 

LAW  OF  INSL'RANCE  —  2; 


386  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

which  should  accrue  under  the  certificate.  It  was  held  that  such 
acts  constituted  an  equitable  change  of  beneficiary,  and  that  the 
son  was  entitled  to  the  fund.  The  court  held  that  the  insured  had 
done  all  that  he  could,  and  all  that  he  was  required  in  equity  to  do, 
to  change  the  donee  of  the  certificate.  "  The  rules  of  the  order 
allowed  him  to  do  this,  and  it  was  not  in  the  discretion  of  the  order 
to  prevent  it.  *  *  *  The  law  never  requires  impossibilities; 
and  the  rules  of  the  order,  which  required  the  certificate  to  be  sur- 
rendered when  a  change  of  the  beneficiary  was  made,  that  it  might 
be  indorsed  upon  the  certificate,  could  only  be  construed  as  requiring 
that  to  be  done  when  the  certificate  was  in  existence.  The  exist- 
ence of  the  right  to  share  in  the  benefits  of  the  order,  and  to  direct 
who  should  receive  the  fund  in  case  of  the  death  of  a  member,  was 
a  right  vested  in  the  member  as  soon  as  he  became  entitled  thereto, 
and  the  certificate  was  only  evidence  of  the  existence  of  that  right, 
and,  when  that  evidence  was  lost,  the  right  remained,  and  its  exist- 
ence could  be  established  by  any  other  competent  evidence;  and 
the  same  is  true  of  the  existence  of  the  change  directed  by  the 
member  of  the  beneficiary." 

(3)  If  the  insured  has  pursued  the  course  pointed  out  by  the  laws 
of  the  association,  and  has  done  all  in  his  power  to  change  the 
beneficiary,  but,  before  the  new  certificate  is  actually  issued,  he 
dies,  a  court  of  equity  will  decree  that  to  be  done  which  ought  to 
be  done,  and  act  as  though  the  certificate  had  been  issued.  The 
case  of  Association  v.  Kirgi?i,  28  Mo.  App.  80,  is  an  illustration  of 
this  exception.  In  this  case  the  insured,  having  met  with  a  fatal 
accident,  called  a  friend,  and  requested  him  to  take  his  certificate 
to  the  association  and  surrender  it,  pay  the  fee  of  fifty  cents,  and 
request  them  to  issue  a  new  one,  payable  to  his  wife.  This  was 
done,  and  a  minute  of  the  transaction  was  made  on  the  records  of 
the  association  for  that  day.  On  the  following  day  the  insured 
died.  It  was  held  that  in  doing  this  he  had  done  all  that  the  laws 
of  the  order  required  to  be  done  on  his  part  in  order  to  have  a  new 
certificate;  that  his  right  to  make  the  change  was  absolute,  and 
that  the  association  had  no  right  to  refuse  his  request;  and,  further, 
that  the  fact  that  the  certificate  was  issued  after  his  death  was 
immaterial,  since  the  certificate  was  not  the  right  itself,  but  merely 
the  evidence  of  the  right.  See,  to  the  same  effect,  Mayer  v.  Asso- 
ciation^ 2  N.  Y.  Supp.  79;  Supreme  Lodge  v.  Nairn,  60  Mich.  44,  26 
N.  W.  Rep.  826;  Kepler  v.  Supreme  Lodge,  45  Hun,  274.  The  case 
of  Ireland  v.  Ireland,  42  Hun,  212,  is  distinguishable  from  these  in 
the  fact  that  the  insured  made  no  written  request  for  a  change,  as 
required  by  the  rules,  but  merely  delivered  the  certificate  to  a  friend, 


BENEFICIARIES.  387 

telling  him  he  wanted  it  changed.  This  was  manifestly  insufifi- 
cient. 

We  think  the  case  under  consideration  falls  within  these  excep- 
tions. Five  days  before  the  death  of  the  insured,  he  signed  and 
acknowledged  before  a  notary  a  written  application  for  a  change  in 
his  certificate  in  the  form  prescribed  by  the  by-laws,  stating  that 
the  original  certificate  to  Anna  Cappella  was  in  her  possession,  and 
beyond  his  control.  This  application  was  delivered  to  the  secretary 
of  the  Carpenter  Conclave  at  Milwaukee,  who  affixed  the  seal  of  the 
conclave,  and  forwarded  it  to  the  supreme  secretary.  It  is  true,  he 
did  not  surrender  the  original  certificate,  as  required  by  the  regula- 
tions; but  he  had  done  all  in  this  connection  which  was  within  his 
power,  or  which  he  could  reasonably  be  required  to  do.  He  had 
requested  defendant  Cappella  to  obtain  it  of  Mueller,  and  deliver  it 
to  the  proper  officer  at  Milwaukee,  and  had  taken  her  word  that  she 
would  do  so.  She  probably  went  to  Milwaukee  with  that  intention, 
but  upon  calling  upon  Mr.  Eckstein,  the  collector  of  the  Carpenter 
Conclave,  she  says  he  advised  her  that  it  would  take  four  or  five 
weeks  to  make  a  change,  and  she  had  better  not  do  it.  This  was 
before  she  had  obtained  the  certificate  of  Mueller,  It  is  but  just 
to  Mr.  Eckstein  to  say  that  he  gives  an  entirely  different  version  of 
the  transaction,  and  swears  that  she  told  him  that  she  had  been  pre- 
vailed upon  to  make  the  change  in  the  benefit  certificate  which  was 
entirely  satisfactory  to  her,  saying  that  $1,000  was  all  she  cared  for, 
seeing  that  that  was  the  amount  the  insured  was  owing  her.    Says  he: 

"  I  asked  her  whether  she  had  something  written  to  that  effect; 
that  it  should  be  made  in  that  manner,  or  indorsed  on  the  certificate. 
She  said  that  nothing  had  been  indorsed  on  the  certificate,  but  she 
was  perfectly  willing  to  leave  it  as  it  was,  and  to  give  the  father 
bonds  or  some  security  for  the  $2,000." 

Upon  arriving  at  St.  Louis,  she  writes  Leo  that  she  thinks  it  best 
to  leave  it  the  way  it  is,  and  that  she  will  never  cheat  his  father  out 
of  the  money.  Her  purpose  was  illy  concealed  by  this  letter. 
Upon  the  stand  she  explains  this  by  saying  that  Leo  was  being 
annoyed  by  his  father  about  the  certificate,  and  she  wished  to  put 
his  mind  at  rest,  that  he  might  die  in  peace,  and  that  his  father 
might  understand  that  he  was  to  have  the  benefit  of  two-thirds  of 
the  certificate.  In  short,  she  leaves  us  to  infer  that  she  never  really 
intended  to  make  the  change.  Our  impression,  however,  is  that 
she  did  intend,  at  first,  to  comply  with  Leo's  request,  but  was  over- 
persuaded  by  someone  to  change  her  mind.  With  regard  to  the 
writing  which  she  received  from  Leo,  she  first  says  that  it  was 
destroyed,  and   then   that  it  was   lost;  but,  whichever  it   was,  it  is 


388  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

clear  that  the  certificate  was  as  much  lost  to  the  insured  as  if  it  had 
been  destroyed.  While  the  supreme  secretary  may  have  been  justi- 
fied in  refusing  to  issue  a  new  certificate  without  a  surrender  of  the 
old  one,  according  to  the  requirements  of  the  order,  it  certainly 
does  not  lie  in  the  mouth  of  Miss  Cappella  to  set  up  this  failure  in 
a  court  of  equity,  when  she  herself  is  a  cause  of  it,  and  the  com- 
pany has  admitted  its  liability  by  the  payment  of  the  money  into 
court.  No  maxim  of  the  law  is  founded  upon  more  substantial 
justice  than  that  which  declares  that  no  one  shall  take  advantage  of 
his  own  wrong  Under  the  by-laws  of  the  company,  the  insured 
had  a  legal  right  to  change  his  beneficiary  whenever  he  pleased; 
and  the  consent  of  the  company  does  not  seem  to  be  required,  much 
less  that  of  the  beneficiary.  Were  the  non-surrender  of  the  certifi- 
cate set  up  by  the  company  in  a  common-law  action  brought  by 
Kratzsch,  it  is  possible  that  the  court  might  be  compelled  to  hold 
that  he  had  failed  to  establish  his  title;  but  when  the  company 
waives  this  defense,  or  at  least  disclaims  any  interest  in  the  result 
of  the  controversy,  the  objection  comes  with  ill  grace  from  one  who 
is  solely  responsible  for  such  non-surrender.  A  court  of  equity  is 
seldom  embarrassed  by  technicalities,  and  will  make  such  a  decree 
as  the  justice  of  the  case  manifestly  requires.  The  cases  above 
cited,  which  establish  the  proposition  that  the  failure  to  take  the 
proper  steps  to  change  the  designation  can  only  be  taken  advantage 
of  by  the  company  itself,  are  equally  pertinent  to  show  that  it  can- 
not be  made  available  by  one  standing  in  the  relation  of  Miss  Cap- 
pella to  this  fund.  The  case  of  Hainer  v.  Legion  of  Honor,  78 
la.  245,  is  instructive  in  this  connection.  In  this  case  the  de- 
ceased had  made  his  certificate  payable  to  his  mother.  Upon  the 
back  was  a  printed  blank  designed  for  changing  the  designation. 
After  the  issuance  of  the  certificate,  the  insured  married,  and  sub- 
sequently died,  leaving  a  will,  in  which  he  bequeathed  one-half  of 
the  amount  due  upon  the  certificate  to  his  daughter.  The  associa- 
tion appeared,  and  paid  into  court  the  amount  of  the  certificate.  It 
was  held  that  the  mother,  having  known  of  the  provisions  of  the 
will,  and  having  made  no  objections  thereto,  but,  on  the  contrary, 
having  expressed  her  acquiescence  in  the  same,  and  taken  posses- 
sion of  certain  real  property  devised  to  her,  and  otherwise  having 
availed  herself  of  the  benefits  conferred  upon  her  by  the  will,  was 
estopped  to  claim  the  full  amount  of  the  certificate.  The  court 
held  that,  although  a  change  of  beneficiaries  by  will  was  not  such  a 
compliance  with  the  regulations  of  the  company  as  would  entitle 
the  person  name]  in  the  will  to  recover,  yet  the  company  having 
disclaimed   any  interest   in   the   controversy  by  the  payment  of  the 


ASSIGNMENT.  3^9 

money  into  court,  the  original  beneficiary  was  estopped  by  tier  con- 
duct in  taking  under  the  will  to  repudiate  the  provision  by  which 
one-half  of  the  certificate  was  bequeathed  to  the  daughter.  The 
case  of  Marsh  v.  Supreme  Council,  149  Mass.  512,  is  still  more 
direct  authority  to  the  point  that  the  original  beneficiary  cannot 
avail  herself  of  her  own  misconduct  to  allege  that  the  insured  did 
not  comply  with  the  requirements  of  the  association. 

There  must  be  a  decree  awarding  one-third  of  the  fund  to  defend- 
ant Cappella,  and  the  residue  to  the  defendant  Julius  Kratzsch, 
with  costs  against  Miss  Cappella. 


II.  Assignment. 

a.  Fire  Insurance. 
WILSON  V.  HILL. 

3  Met.  66.  —  1841. 
[^Reported  herein  at  p.  I.] 


HALL  V.  NIAGAR.\   FIRE  INSURANCE  CO. 

93  Mich.  184.  —  1892. 

Action  upon  a  fire  policy  issued  to  Hough  in  1888,  for  three 
years,  upon  a  house  built  upon  land  which  he  held  under  a  contract 
of  purchase.  May  14,  1889,  Hough  contracted  in  writing  to  sell 
"  lot  7,"  upon  which  this  house  was  built,  to  one  Stevens,  for  $3,500 
upon  monthly  payments  of  $25.  Stevens  went  into  possession  at 
once  and  occupied  the  premises  at  the  date  of  the  fire.  The  policy 
provided  that  "  this  policy  shall  become  void,  unless  consent  in 
writing  is  indorsed  by  the  company  hereon,  in  each  of  the  following 
instances,  viz.:  *  *  *  if  any  change  take  place  in  the  title, 
interest,  location,  or  possession  of  the  property,  (except  in  case  of 
succession  by  reason  of  the  death  of  assured),  whether  by  sale, 
transfer,  or  conveyance,  in  the  whole  or  in  part,  or  by  legal  process 
or  judicial  decree;  or  if  the  title  or  possession  be  now  or  hereafter 
become  involved  in  litigation;  or  if  this  policy  be  assigned  or  trans- 
ferred before  a  loss." 

In  March,  1890,  and  before  the  fire,  Hough  assigned  all  his  inter- 
est in  his  original  contract  of  purchase,  to  Hall,  the  plaintiff.  At 
the  time  of  that  assignment,  Hough  assigned  the  policy  to  Hall,  and 
Hough  and   Hall  went  together  to  the  office  of  defendant's  agent. 


390  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

Hall  told  the  agent  that  Hough  had  "  assigned  his  interest  in  the 
property  "  to  him  (Hall),  and  that  he  "  wanted  the  policy  to  read 
payable  to  him  in  case  it  should  burn,"  and  thereupon  the  consent 
of  the  company  was  indorsed  upon  the  policy.  The  court  below 
directed  a  verdict  for  defendant.      Plaintiff  appeals. 

McGrath,  J.  —  *  *  *  'p[-)g  record  presents  two  questions: 
(i.)  Was  this  contract  valid  at  its  inception?  (2.)  Conceding  that 
the  policy  was  vitiated  by  the  Stevens  contract  as  to  Hough,  what 
was  the  effect  of  the  company's  consent  to  the  assignment  to  plain- 
tiff? [77/c?  court  here  discusses  the  first  question  and  gives  an  affirmative 
answer  to  //.] 

The  other  question  is  the  more  serious  one,  and  one  upon  which  the 
authorities  are  by  no  means  uniform.  In  Insurance  Co.  v.  Munns, 
X20  Ind.  30,  22  N.  E.  Rep.  78,  the  assured  had  mortgaged  the  prop- 
erty, and  afterwards  sold  it  to  Munns,  and  assigned  the  policy,  to 
which  assignment  the  company,  without  knowledge  or  notice  of  the 
mortgage,  consented.  The  court  held  that  a  contract  of  insurance 
is  a  purely  personal  engagement,  and  does  not  run  with  the  property 
insured,  c\\^\x\<g  Nordyke  <^  Marnion  Co.  v.  Ger\\  112  Ind.  535,  13  N. 
E.  Rep.  683,  and  Cum/nings  v.  Insurance  Co.,  55  N.  H.  454.  "  That 
the  policy  e.xpires  with  the  transfer  of  the  estate,  so  far  as  it  relates 
to  the  original  holder,  but  the  assignment  and  assent  of  the  company 
thereto  constitute  an  independent  contract  with  the  purchaser  and 
assignee,  the  same,  in  effect,  as  if  the  policy  had  been  reissued  to 
him  upon  the  terms  and  conditions  therein  expressed.  *  *  * 
The  contract  of  insurance,  thus  consummated,  arises  directly 
between  the  purchaser  and  the  insurance  company,  to  all  intents 
and  purposes  the  same  as  if  a  new  policy  had  been  issued  embracing 
the  terms  of  the  old.  In  such  a  case,  no  defense  predicated  on 
supposed  violations  of  the  conditions  of  the  policy  by  the  assignor 
will  be  available  against  the  assignee.  Until  the  latter  himself  does 
some  act  or  permits  a  condition  of  things  to  exist  in  violation  of 
the  terms  of  the  policy,  he  is  not  in  default."  That,  being  a  new 
and  independent  contract,  both  parties  are  subject  to  the  same 
rules  which  govern  the  making  of  the  original  contract.  A  large 
number  of  authorities  are  cited  in  support  of  the  conclusions 
reached.  In  Steen  v.  Insurance  Co.,  89  N.  Y.  315,  the  court  held 
that  the  consent  to  the  assignment  created  a  new  contract  between 
the  company  and  the  assignee,  unaffected  by  the  forfeiture,  if,  in 
any  event,  it  could  have  been  insisted  upon.  In  Shearman  v. 
Insurance  Co..,  46  N.  Y.  526,  the  property  was  conveyed  to  plaintiff 
March  4th.  The  policy  was  renewed  in  the  name  of  the  grantor, 
March  21st,   and  was   assigned    to  plaintiff,  April  15th,  and   on   the 


ASSIGNMENT.  39I 

same  day  the  company  consented  to  the  assignment.  The  com- 
pany insisted  that  at  the  time  of  its  consent  it  had  no  knovvl- 
edge  of  any  fact  except  that  at  that  time  it  was  notified  that 
the  property  had  been  conveyed  to  plaintiff,  but  the  time  of  the 
transfer  had  not  been  given,  nor  the  fact  that  the  poHcy  was  issued 
after  the  transfer.  The  court  held  that  "  the  renewal  revived  the 
original  policy,  and  continued  it  with  all  the  virtue  which  it  would 
have  had  for  any  purpose,  if  it  had  not  expired;  that  the  consent  to 
the  assignment  was  equivalent  to  an  agreement  to  be  liable  to  the 
assignee  upon  the  policy  as  a  subsisting  operative  contract,  for 
which  agreement  the  retention  of  the  premium  received  on  the 
renewal  was  a  good  consideration." 

In  Hooper  v.  Insurance  Co.,  17  N.  Y.  424,  the  insurance  was  upon  a 
stock  of  goods  which  had  been  sold  on  execution,  and  the  purchaser 
obtained  the  consent  of  the  company  to  an  assignment  to  him,  and 
the  court  held  that  the  policy  became  a  new  contract  of  insurance 
between  the  underwriters  and  the  assignee.  "An  assignment,  there- 
fore, being  of  no  avail,  except  in  case  of  an  interest  in  the  assignee 
in  the  subject  insured,  the  request  made  to  the  defendant  to  consent 
to  an  assignment  to  plaintiff  was  of  itself  notice  to  them  that  he  had 
acquired  or  was  about  to  acquire  an  interest  in  the  insured  property. 
If,  therefore,  it  was  important  to  the  defendants  to  know  what  the 
nature  of  the  interest  was  which  the  plaintiff  had  acquired,  they 
should  have  asked  for  information  in  respect  to  it.  If  they  were 
content  to  give  their  consent  without  such  inquiry,  it  was  their  own 
fault." 

In  Ellis  V.  Insurance  Co.,  64  Iowa,  507,  20  N.  W.  Rep.  782,  it  was 
held  that,  "Although  the  assured  may  have  made  statements  in  his 
application  which  by  the  terms  of  the  policy  would  defeat  a  recovery 
thereon  by  him,  yet,  where  the  insured  property  is  sold  and  the 
policy  assigned  to  another,  and  the  comp,iny  assents  to  such  assign- 
ment, a  new  contract  arises,  which  is  not  affected  by  the  fraud  of 
the  party  originally  insured."  In  Ellis  v.  Insurance  Co.,  68  Iowa, 
578,  27  N.  W.  Rep.  762,  a  majority  of  the  court  held  that  the  pro- 
vision in  the  policy  that,  "  if  the  title  of  the  property  is  incumbered, 
the  policy  shall  be  void,"  was  imported  into  the  new  contract,  and 
that  the  existence  of  the  mortgage  invalidated  that  contract.  The 
court  divided  upon  the  construction  of  this  provision,  a  minority  of 
the  court  holding  that  it  was  not  against  prior  or  existing  incum- 
brances, but  against  those  which  should  fall  on  the  property  subse- 
quent to  the  execution  and  delivery  of  the  new  contract.  Upon 
this  question  the  dissenting  opinion  is  in  accord  with  the  case  of 
Hoose  V.  Insurance  Co.,  [84  Mich.  309]. 


392  LIMITS    OF   THE   CONTRACTUAL   OBLIGATION. 

In  Ellis  V.  Insurance  Co.,  32  Fed.  Rep.  646,  there  is  a  very  able 
discussion  of  the  question  by  Brewer,  J.,  who  says: 

"  Where  an  assignment  goes  with  an  absolute  sale  of  the  property  there 
is  the  creation  of  a  new  contract.  If  it  is  a  new  contract  for  one  purpose,  it  is 
a  new  contract  for  all  purposes.  The  assignment  is  expressed  to  be  subject  to 
the  terms  and  conditions  of  the  policy.  What  does  that  mean  ?  It  is  equiva- 
alent  to  saying  that  the  assignee  takes  the  contract  as  of  present  writing,  con- 
taining the  same  terms  and  stipulations,  binding  him  to  the  same  duties,  and 
subjecting  him  to  the  same  liabilities  that  were  imposed  by  the  contract  in 
the  first  instance  upon  the  assignor.  In  no  other  way  can  it  fairly  be  said  that 
a  new  contract  was  made.  Tested  by  that  rule,  the  assignee  agreed,  as  the 
assignor,  had  agreed,  in  the  first  instance,  that  he  vvould  place  no  incum- 
brance upon  the  property,  and  that,  if  he  did,  the  policy  should  fail.  There  is 
no  pretense  that  he  has  violated  that  stipulation  thus  construed.  It  may 
well  be  doubted  whether  the  use  of  the  technical  terms  '  assignment,' 
'  assignor,'  and  '  assignee  '  are  apt  to  describe  the  actual  transaction.  When 
the  insured  sells  the  property,  that  moment  the  policy  falls.  He  has  no  insur- 
able interest.  The  policy  cease=  to  have  legal  force  as  a  policy.  Can  it  be 
said  he  is  assigning  that  which  is  nothing,  and  that  the  insurance  company 
contemplates  and  assents  to  the  transfer  of  that  which  has  no  legal  exist- 
ence ?  *  *  *  This  is  a  practical  question,  and  vve  must  look  at  these  mat- 
ters in  a  practical  light.  When  the  purchaser  buys  the  property,  naturally 
the  thought  in  his  mind  is  insurance.  It  being  his,  and  the  old  policy 
being  dead,  he  looks  for  insurance.  He  finds  a  policy  which  had  been  in  force, 
dead  because  of  his  purchase  and  cessation  of  the  insurable  interest  in  the 
assignor,  yet  which  the  insurance  company  is  willing  to  have  transferred  to 
him.  Would  it  not  be  an  injustice  to  him  if,  after  the  insurance  company  has 
consented  to  that  transfer,  it  could  turn  back  to  acts  done  by  the  person  from 
whom  he  obtained  the  policy,  and  claim  that  those  acts  vitiated  the  whole 
thing,  and  rendered  it  not  liable  to  the  assignee?  *  *  *  But  it  is  said  there 
is  really  no  consideratio:i  for  this  contract  on  the  part  of  the  company. 
*  *  *  The  assignment  of  this  policy  is  an  assertion,  practically,  by  the 
assignor  of  a  right  to  an  unearned  premium,  and  the  claim  of  such  unearned 
premium,  presented  to  the  assignee,  is  assented  to  by  the  company  when  it  con- 
sents to  the  assignment.  It  matters  not  that  there  may  have  been  no  actual 
right  to  such  unearned  premium,  for  the  recognition  and  compromise  of  a 
claim  is  consideration.  Further  than  that  there  would  be  the  injury  to  the 
assignee   as   well   as   the    benefit   to   the    insurer   to   be    considered.'     Again, 

'  "  It  is  hard  to  see  hovv  the  person  originally  insured  has  any  claim  upon  the 
insurance  company  for  a  return  of  the  premium  paid  for  a  term  not  yet 
expired.  Apart  from  any  special  agreement  for  the  return  of  premium,  his 
claim  will  rest  entirely  upon  a  failure  of  consideration;  and  there  has  been  no 
failure  of  consideration  here,  either  partial  or  total.  The  contract  in  favor  of 
the  insured  still  exists  after  the  assignment  of  the  property,  and  if  subsequently 
any  interest  in  the  subject-matter  of  the  insurance  becomes  vested  in  the  insured 
during  the  continuance  of  the  policy  the  insured  will  be  protected  from  any  loss 
to  his  interest.  Yet  the  suggestion,  that  the  exemption  of  the  insurer  from 
further  liability  to  the  vendor  is  a  sufficient  consideration  for  the  new  promise. 


ASSIGNMENT.  393 

it  is  said  that  there  can  be  no  waiver  without  knowledge;  that  the  insur- 
ance company  was  ignorant  of  the  fact  of  this  incumbrance;  and  there- 
fore it  should  not  be  held  lo  have  waived  its  rights.  There  may  be  estoppel 
without  knowledge.  *  *  *  This  consent  lo  the  assignment,  dealing  with 
things  in  a  practical  way,  must  be  construed  as  a  statement  by  the  in- 
surance company  that  it  recognized  that  policy  as  a  valid  instrument.  Surely  it 
vvDuld  be  unjust  to  think  that  the  insurance  company  put  itself  into  the  positiun 
of  assenting  to  the  transfer  of  a  policy,  which  had  no  validity,  going  through 
the  form  of  consenting  to  that  which  had  no  legal  existence,  and  was  worthless. 
These  considerations,  although  we  concede  that  the  question  is  one  of  not  per- 
fect transparency,  lead  us  to  the  conclusion  that  this  assignment  must  be 
caken.  in  the  language  of  the  text-books  and  the  authorities,  to  create  a  nevv 
contract  between  the  assignee  and  the  insurance  company,  —  a  nevv  contract 
embracing,  as  of  present  wriiing,  the  same  terms  and  stipulations  as  were 
embraced  in  the  contract  originally  written  between  the  assignor  and  insurer. 
2  May,  Ins.  §  378;  Wood,  Ins.  §§  no,  366;  Fland.  Ins.  484;  Cummings  v.  Insurance 
Co.,  55  N.  H.  457;  Wilson  v.  Hill^  3  Mete.  (Mass.)  66;  Flanagan  v.  Insurance  Co., 
25  N.  J.  L.  506;   Pratt  V.  Insurance  Co.,  64   Barb.  589." 

may  afford  an  explanation  of  this  question.  It  is  apparent  that  this  explanation 
depends  entirely  upon  principles  of  novation.  The  argument  is  that  the  old 
obligation  to  the  vendor  is  released  in  consideration  that  the  insurer  incurs  a 
new  obligation  to  the  vendee.  The  writer  is  unable  to  see  how  this  doctrine 
of  novation  can  be  justified  upon  any  principles  of  the  common  law.  It  is  clear 
that  it  violates  a  fundamental  principle  in  regard  to  consideration,  viz.,  that  the 
consideration  must  move  from  the  promisee.  In  the  present  case,  the  promisee 
suffers  no  detriment  and  makes  no  change  of  position  at  the  request  of  the 
promisor,  and  he  has  given  nothing  to  the  insurer  for  the  benefit  of  the  promise, 
so  that  from  him  there  is  no  consideration.  Furthermore,  the  circumstances  of 
the  transaction  will  hardly  justify  this  view,  even  if  the  doctrine  of  novation  be 
admitted.  In  their  bare  detail  they  amount  to  this.  The  property  insured  is 
sold,  and  the  policy  is  handed  over  either  with  or  without  a  written  assignment. 
The  policy  is  then  taken  by  the  assignee  to  the  insurance  company,  and  they 
consent  to  the  assignment.  It  is  sometimes  customary  for  the  assignment  and 
the  consent  to  be  in  writing  and  then  the  consent  is  usually  indorsed  on  the 
policy.  Nothing  more  is  done,  and  it  is  difficult  to  see  how  these  facts  can  be 
construed  to  mean  a  surrender  of  an  old  obligatinn  and  the  issue  of  a  new  one, 
—  particularly  as  the  same  obligation  is  reissued  which  was  issued  in  the  first 
place.  But  in  policies  like  that  which  was  transferred  in  Fogg  v.  Middlesex 
Mutual  Fire  Insurance  Co.,  [10  Cush.  337],  there  is  a  condition  that  the  policy 
shall  be  void  if  the  property  be  assigned.  In  most  cases  the  property  is  assigned 
before  the  consent  of  the  insurer  is  obtained,  and  this  condit  ion  is  broken,  there- 
fore, before  the  consent  of  the  insurer  to  the  assignment  is  obtained.  The  obliga- 
tion of  the  insurers,  therefore,  is  avoided,  and  hence  there  is  no  legal  obligation 
which  can  be  surrendered  in  return  for  the  new  obligation;  and  yet  the  assign- 
ment is  perfectly  effectual  against  the  insurance  company.  Shear?nan  v.  Xiagara 
Fire  Insurance  Co.,  46  N.  Y.  526.  See  Stei?i  v.  Niagara  Ins.  Co.,  61  How.  Pr. 
144;  Hooper  V.  Hudson  R.  F.  Ins.  Co.,  17  N.  Y.  424."  —  Chauncey  G.  Parker  on 
"  The  Nature  of  a  Policy  of  Insurance  with  Regard  lo  its  Assignability,"  in  I 
Har.  Law  Rev.  388,  390. 


394  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

An  insurance  policy  is  a  personal  contract  of  indemnity.  It  is 
non-assignable,  except  with  the  assent  of  the  insurer;  nevertheless- 
the  assignment  of  policies  of  insurance  is  an  incident  of  nearly  every 
transfer  of  personal  property  or  improved  real  estate.  Une.xpired 
policies,  before  loss,  have,  as  a  rule  in  the  hands  of  the  person  to 
whom  issued  or  his  assignee,  a  certain  face  value,  which  is  the 
unearned  premium  or  indemnity  to  the  assignee  for  the  unexpired 
term.  They  are  either  transferred  as  a  part  of  the  consideration 
for  the  purchase  money,  or  the  value  of  the  unearned  premium  is 
agreed  to  be  paid  in  consideration  of  the  assignment.  The  assignee 
acquires  the  right  to  the  unearned  premium,  or  the  right  to  the 
indemnity  for  the  unexpired  term  for  value.  The  right  to  the 
unearned  premium  may  be  subject  to  the  conditions  of  the  contract, 
for  he  takes  that  right  subject  to  the  consent  of  the  company.  But 
suppose  that  the  unearned  premium  is  paid  over  to  the  assignee  of 
the  policy,  or  credited  upon  the  premium  for  a  new  policy,  could  it 
be  contended  that  the  company  would  have  the  right  to  recover 
back  the  sum  so  paid  or  credited  from  the  assignee?  The  company, 
in  such  case,  recognizes  the  validity  of  the  policy,  and  the  assignee 
is  simply  reimbursed  for  what  he  has  paid  to  the  assignor.  The 
ordinary  railroad  mileage  ticket  is  not  transferable,  and  attached  Is 
a  condition  that  its  use  by  any  other  person  will  operate  as  a  for- 
feiture. Suppose  that  A.  hold  such  a  ticket,  which  he  desires  to 
transfer  to  B.,  and  they  go  together  to  the  office  of  the  railroad 
company,  and  A.  transfers  the  ticket  to  B.,  and  the  company 
indorses  its  consent,  B.  paying  the  value  represented  by  the  unused 
strip  for  the  transfer.  Could  the  railroad  company  be  afterwards 
heard  to  say,  as  against  B.,  that  A.  had,  before  the  transfer,  for- 
feited the  contract,  even  though  it  had  no  knowledge  of  the  breach, 
and  therefore  the  contract  was  void  as  to  B?  Certainly  not.  By 
consent,  a  new  contract  between  the  company  and  B  is  created. 
The  company  has  agreed  with  B.  that  the  unused  coupons  are  good 
in  his  hands.  The  company  cannot  be  said  to  have  waived  that 
which  it  had  no  knowledge  of,  but  it  has  waived  the  right  as 
against  B.  to  insist  upon  A.'s  infirmities,  whatever  they  may  have 
been.  The  contract  which,  prior  to  the  transfer,  was  personal  with 
A.,  has  ceased,  and  has  become  personal  with  B.  B.  does  not  agree 
that  A.  has  not  violated  its  provision,  but  only  that  he  will  not. 
Insurance  contracts  are  peculiar,  and  hence  rules  applicable  to  other 
contracts  are  applicable  to  them  only  so  far  as  the  provisions  are 
analogous. 

When  a  party  to  a  non-assignable  instrument,  representing  upon 
its  face  an  unearned  vnlu--,  coPFert-  to  its  transfer  without  riisrva- 


ASSIGNMENT.  395 

tion,  and  .the  assignee  in  good  faith  pays  value  for  such  transfer, 
the  party  consenting  cannot  be  heard  to  set  up  mental  reservations 
or  prior  breaches  which  were  unknown  to  either  party.  The  rule 
applicable  to  the  transfer  of  an  assignable  contract  has  no  applica- 
tion to  such  contracts.  The  consent  to  the  assignment  imported 
validity.  The  right  to  withhold  or  grant  it  is  for  the  benefit  of  the 
insurer.  It  has  its  burdens  as  well  as  its  advantages.  The  applica- 
tion for  consent  is,  in  effect,  one  for  a  contract  of  indemnity  to  the 
assignee.  It  affords  an  opportunity  to  the  company  to  examine  the 
risk,  or.  to  inquire  as  to  the  title  or  interest  to  be  insured,  or  as  to 
whether  there  had  been  any  other  change  in  risk  or  title.  Had  de- 
fendant done  so,  and  refused  its  consent,  plaintiff  wouLl  have  been  in 
a  position  to  retain  or  recover  the  consideration  paid,  and  to  seek 
indemnity  elsewhere.  It  is  too  late  now,  after  the  loss,  to  set  up 
the  changed  conditions.  It  may  be  said,  too,  that  at  the  time  of 
the  application  for  the  consent  of  the  company  to  the  assignment, 
plaintiff  informed  the  company  that  Hough  had  assigned  his  inter- 
est in  the  property  to  him  That  was  suthcient,  of  itself,  to  put  the 
company  upon   inquiry.' 

Defendant  insists,  further,  that,  inasmuch  as  plaintiff  had  com- 
menced proceedings  against  Stevens  before  a  Circuit  Court  commis- 
sioner, to  recover  possession  of  the  premises,  the  policy  was  invalidated 
thereby.  The  policy  contained  a  provision  that,  "  if  the  title  or 
possession  be  now  or  hereafter  become  involved  in  litgation," 
the  policy  should  become  void.  Stevens  was  clearly  in  default, 
having  occupied  the  premises  for  twelve  months,  and  paid  but  ^j^, 
whereas  he  had  agreed  to  pay  $25  per  month.  Plaintiff  had  declared 
the  contract  under  which  Stevens  occupied  void,  as  he  had  the  right 
to  do  under  the  contract.  From  that  moment  Stevens  became  and 
was  a  tenant  holding  over  without  permission.  The  proceeding  to 
recover  possession  was  predicated  upon  these  provisions  of  the  con- 

'  Judge  Hare,  in  his  notes  to  2  Amer.  Lead.  Cas.  (5th  ed.)  SS8,  criticises  the 
accepted  doctrine  as  to  the  formation  of  a  new  contract  between  the  assignee 
and  the  insurer  He  says  that  this  explanation  of  the  transaction  is  "  at  vari- 
ance with  the  main  current  of  authority  which  establishes  that  the  assignee 
claims  through  and  under  the  assignor,  and  is  subject  to  e^-ery  defense  that 
would  be  good  against  him;  "  that  the  explanation  "  is,  moreover,  inapplicable 
to  the  assignment  of  a  marine  policy,  which  does  not  require  the  assent  of  the 
insurers,  and  is  manifestly  a  transfer  of  the  old,  and  not  the  creation  of  a  new 
contract."  He  suggests  that  "  if  the  policy  be  interpreted  as  a  contract  for  the 
benefit,  not  only  of  the  insured,  but  of  those  who  claim  under  him  subse- 
quently, as  purchasers,  the  necessity  for  resorting  to  a  new  contract  will  dis- 
appear, and  there  will  be  no  difficulty  in  adjusting  the  rights  of  the  parties  on 
their  true  basis." 


Sg6  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

tract.  It  cannot  be  contended  that  the  provision  of  the  policy 
referred  to  contemplated  that,  in  the  event  that  proceedings  were 
instituted  to  oust  a  tenant,  the  policy  should  become  void.  This 
provision,  taken  in  connection  with  the  other  provisions  of  the 
policy,  clearly  relates  to  a  litigation  over  the  title  or  possession  of 
the  assured.  The  judgment  must  be  reversed,  and  a  new  trial  had, 
with  costs  of  this  court  to  the  plaintiff.  The  other  justices 
concurred. 


ILLINOIS  MUTU.\L  FIRE  INS.  CO.  v.  FIX. 
53  III.  151.  —  1870. 

L.AWRENCE,  J.  —  The  appellee,  Fix,  being  indebted  to  Mayer,  for 

whose  use  this  suit  is  brought,  executed  to  him  his  notes,  secured 
by  mortgage  on  a  brewery,  and  at  the  same  time  assigned  to  him  a 
policy  of  insurance,  issued  by  the  appellants,  upon  the  building 
and  fixtures.  This  assignment  was  made  with  the  consent  of  the 
company  indorsed  upon  the  policy.  The  present  suit  was  brought 
in  the  name  of  Fix  for  the  use  of  Mayer,  and  resulted  in  a  verdict 
and  judgment  for  the  plaintiff,  from  which  the  company  appealed. 
On  the  trial,  the  company  offered  to  prove  that  the  building  was  set 
on  fire  by  the  plaintiff.  Fix.  The  evidence  was  objected  to  by 
plaintiff's  counsel,  and  the  objection  was  sustained.  This  ruling 
presents  the  main  question  in  the  case,  to  wit,  whether,  where  a 
policy  of  insurance  has  been  assigned  by  the  assured  to  one  holding 
a  mortgage  on  the  premises,  with  the  consent  of  the  company 
indorsed  upon  the  policy,  its  validity  can  be  destroyed  by  acts  done 
by  the  assignor  in  violation  of  its  conditions. 

This  question  has  received  much  discussion  in  the  courts  of  New- 
York,  and  the  decisions  first  made  have  been  deliberately  overruled. 
It  was  first  held,  in  Insurance  Co.  v.  Robert.^  9  Wend.  404,  that  no 
act  of  the  assured,  after  the  assignment  of  the  policy  with  the  con- 
sent of  the  company,  can  impair  the  rights  of  his  assignee.  This 
case  was  approved  and  followed  in  Tillon  v.  Insurance  Co..,  5  N.  Y. 
406,  the  court  holding  that  the  assignment  of  a  policy,  with  the 
assent  of  the  insurer,  creates  new  and  mutual  relations  and  rights 
between  the  assignee  and  the  insurer,  which  cannot  be  impaired  by 
a  third  person,  over  whom  the  assignee  has  no  control.  The  ques- 
tion again  came  up  in  Grosvenor  v.  Insurance  Co..,  17  N.  Y.  392,  and 
in  Buffalo  Sleatn  Engine  Works  v.  Sun  Mut.  Ins.  Co.,  IJ.  401.  In 
the  first  case  the  policy  was  not  assigned  by  the  mortgagor  to  the 
mortgagee,  but,  by  its  original  terms,  the  loss,  in  case  of  fire,  was 


ASSIGNMENT.  397 

made  payable  to  the  mortgagee.  The  majority  of  the  court  held 
the  case  was  not  distinguishable  from  an  assignment  of  the  policy, 
and,  overruling  the  cases  already  cited,  held  the  policy  was  avoided 
by  certain  acts  done  by  the  mortgagor  in  violation  of  its  terms. 
One  of  the  eight  judges  composing  the  court  dissented  altogether, 
and  two  others  concurred  only  on  the  ground  that  the  case  was  not 
like  one  in  which  the  policy  had  been  assigned.  In  the  other  case, 
decided  at  the  same  term,  and  which  was  one  of  assignment,  the 
majority  of  the  court  held  the  policy  avoided  by  the  acts  of  the 
assignor,  the  three  judges  dissenting. 

In  these  two  cases,  the  question  involved  received  a  much  fuller 
discussion  than  was  given  to  it  when  the  former  decisions  were  ren- 
dered. In  reply  to  the  argument  of  the  court  in  9  Wend,  that  the 
assignor  could  not  be  permitted  to  execute  a  release  to  the  insur- 
ance company  which  would  impair  the  rights  of  the  assignee,  and 
that  he  should  not  be  permitted  to  do  indirectly  what  he  could  not 
do  directly,  the  court  very  justly  say,  this  argument  fails  to  dis- 
tinguish between  acts  done  for  the  purpose  of  discharging  a  liability, 
and  acts  which,  by  the  terms  of  the  contract,  were  necessary  to  be 
done  or  omitted,  in  order  to  continue  the  liability  in  force.  The 
principle,  however,  laid  down  in  the  case  in  5  N.  Y.  that  the 
assignment  of  a  policy,  with  the  assent  of  the  company,  creates  new 
relations  and  rights  between  the  assignee  and  the  company,  is  not 
wholly  repudiated  as  never  applicable,  for  it  is  admitted  that,  in 
cases  where  there  has  been  an  absolute  sale  of  the  insured  property, 
the  assured  retaining  no  interest  in  it,  and  there  has  been  an  assign- 
ment of  the  policy  to  the  purchaser,  with  the  consent  of  the  com- 
pany, such  purchaser  may  be  considered  as  becoming  a  party  to  the 
contract,  taking  upon  himself  the  performance  of  its  conditions, 
while  the  assignor,  cessing  to  be  a  substantial  party,  and  having  no 
interest  in  the  subject-matter,  could  do  no  act  affecting  the  rights 
of  the  assignee.  The  court  insist,  however,  that  this  principle  can- 
not be  applied  to  an  assignment  to  a  mortgagee,  because,  in  such 
cases,  the  mortgagor  retains  his  interest  in  the  property  and  in  the 
policy,  and  whenever  the  mortgage  debt  is  paid,  the  benefit  of  the 
policy  reverts  to  him,  or  in  case  the  policy  exceeds  the  amount  of 
the  mortgage,  the  surplus,  in  the  event  of  a  loss,  would  be  payable 
to  the  mortgagor.  The  court  further  say,  that  the  rule  of  the 
former  cases  would  make  insurance  companies  liable  for  risks  which 
they  never  assumed,  and  against  which  their  policies  are  intended 
to  guard  them,  for,  under  this  rule,  a  mortgagor,  remaining  in 
possession,  might  convert  a  building,  insured  as  a  dwelling-house, 
to  a  use  vastly  more  hazardous,  as  by  making  it  a  place  for  manu- 


398  LIMirS   OF   THE   CONTRACTUAL   OHLIGATION. 

facturing  fireworks,  and  still  the  company  be  required  to  pay, 
allriGJgh  one  of  the  material  terms  of  its  contract  was  that  its  lia- 
bility should  cease  in  the  event  of  such  a  change  in  the  uses  of  the 
property.  The  Supreme  Court  of  Pennsylvania,  in  Insurance  Co.  v. 
Roberts,  31  Pa.  St.  438,  adopts  the  rule  of  these  cases,  in  a  well 
considered  opinion.  The  Supreme  Court  of  the  United  States  in 
Carpenter  \.  Insurance  Co.,  16  Pet.  495,  lays  down  a  similar  principle. 
This  rule  is  also  followed  in  People  v.  Resolute  Ins.  Co.,  17  Wis  378. 
On  the  other  hand,  the  earlier  New  York  cases  were  followed  in 
Pollard  \ .  Insurance  Co.,  42  Me.  226. 

In  this  State  the  question  is  an  open  one.  Counsel  for  appellee 
cite  Insurance  Co.  v.  Wetmore,  32  III.  242,  and  Insurance  Co.  v.  Marks, 
45  111.  4S2,  as  adopting  the  rule  of  the  earlier  New  York  cases.  But 
in  the  first  of  these  cases,  the  policy  was  issued  directly  to  the 
mortgagees,  and  assigned  by  them  with  the  note  and  mortgage,  and 
the  question,  in  regard  to  which  the  case  in  5  N.  Y.  was  cited,  was 
as  to  the  right  of  the  assignee  to  bring  suit  in  the  name  of  the 
assignors.  In  the  case  in  45  III.  the  assured  had  sold  the  stock  of 
goods  insured,  and  the  policy  had  been  assigned  to  the  purchaser 
with  the  consent  of  the  company.  The  court,  in  its  opinion,  cites 
the  earlier  New  York  cases  only,  but  even  under  the  rule  laid  down 
in  the  last  case,  in  17  N.  Y.,  the  assignee  was  entitled  tc  recover, 
the  transaction  being  a  sale  and  not  a  mortgage. 

This  court  has  shown,  in  various  cases,  a  disposition  to  hold  insur- 
ance companies  to  a  full  measure  of  responsibility,  but  we  are  of 
opinion  that  the  cases  in  17  N.  Y.  stand  upon  the  better  reason. 
The  consent  of  insurance  companies  to  an  assignment  of  the  policy 
by  a  mortgagor  to  a  mortgagee,  should  not  be  construed  as  impos- 
ing upon  them,  as  a  consequence  of  such  mere  naked  assent,  a  lia- 
bility which  they  never  would  intentionally  assume,  and  against 
which  they  take  all  possible  pains  to  guard  themselves,  and  must 
guard  themselves  in  order  to  preserve  their  solvency  The  principle 
contended  for  by  counsel  for  appellee,  and  laid  down  in  the  earlier 
New  York  cases,  is,  that  no  act  of  the  assignor,  done  without  the 
consent  of  the  assignee,  can  invalidate  the  policy,  so  far  as  relates 
to  the  assignee.  If  this  be  true  without  limitation,  then,  as  said  by 
the  New  York  Court  of  Appeals,  a  risk  taken  by  a  company  at  the 
lowest  rates,  because  in  the  least  hazardous  class,  might  be  changed, 
by  the  mortgagor  remaining  in  possession,  and  without  the  concur- 
rence of  the  mortgagee,  to  the  class  of  e.xtra-hazardous,  and  the 
liability  of  the  company  would  remain  the  same.  A  detached  dwell- 
ing-house might  be  converted  into  a  powder  magazine,  or  to  some 
other  use  which  would   prevent  any  sound  insurance  company  frcni 


ASSIGNMENT.  399 

taking  the-  risk  on  any  terms,  and  still,  under  the  rule  claimed  by 
appellee,  the  company  would  remain  responsible.  The  mortgagor 
might  go  further,  and  not  only  convert  his  building  to  extra-hazard- 
ous uses,  but  absolutely  set  it  on  fire,  with  a  view  of  defrauding  the 
company,  as  the  appellants  offered  to  prove  was  done  in  the  present 
case. 

We  cannot  adopt  a  rule  which  would  lead  to  such  results.  In 
analogy  to  the  case  of  absolute  sales  by  the  assured,  we  should  be 
much  inclined  to  hold  to  the  rule  announced  in  5  N.  Y.,  if  it  were 
possible  to  separate  the  interest  of  the  mortgagor  and  mortgagee. 
But  it  is  not,  for  the  mortgagor  is  not  only  interested  in  the  pay- 
ment of  the  mortgage,  but,  where  he  pays  the  premium,  the  fruits 
of  the  policy  absolutely  belong  to  him,  subject  to  the  lien  of  the 
mortgagee.  Where  there  is  an  absolute  sale,  there  is  no  difficulty 
in  determining  the  measure  of  the  assignee's  rights  and  the  com- 
pany's liabilities,  for  he  stands  in  the  position  of  receiving  a  new 
policy  as  owner,  and  becomes  responsible  for  any  extra-hazardous 
uses  to  which  the  building  may  be  applied,  a  responsibility  he 
cannot  evade  on  the  ground  that  the  building  is  not  under  his 
control. 

But  where  there  is  no  sale,  but  the  policy  is  merely  assigned  as 
security,  we  are  obliged  to  hold,  either  that  the  company  is  bound 
absolutely  to  the  assignee,  no  matter  how  far  the  conditions  of  its 
contract  may  have  been  violated,  which  would  be  a  very  unreason- 
able ruling,  or  that  there  is  such  identity  of  interest  in  regard  to 
both  the  property  and  the  policy,  that  there  can  be  no  recovery, 
even  for  the  use  of  the  assignee,  if  the  assignor  fails  to  comply  with 
the  conditions. 

The  utmost  that  can  be  claimed  for  an  assignee  in  such  cases  is, 
that  he  should  stand  in  the  same  position  as  if  he  had  taken  out  a 
new  and  independent  policy  to  protect  his  own  interest  as  mortgagee. 
Bat  admitting  such  claim,  we  have  no  rule  to  guide  us.  It  is  impos- 
sible for  us  to  say  what  conditions  the  company  would  deem  it 
necessary  to  insert  in  such  a  policy  for  its  own  protection.  It  is 
very  certain  it  would  stipulate  that  the  hazard  to  the  building  should 
not  be  increased,  and  thus  would  compel  the  mortgagee  to  take 
upon  himself  the  responsibility  of  the  mortgagor's  acts,  from  which 
he  could  not  escape  by  saying  that  his  rights  should  not  be  preju- 
diced by  the  acts  of  a  third  person.  It  would  necessarily  result, 
from  the  nature  of  the  interest  insured,  that  its  owner  might  be 
damnified  by  the  acts  of  the  mortgagor  in  possession,  although 
beyond  his  control.  Whether  a  company  would  also  stipulate,  in 
such  a  policy,  that  neither  the  mortgagor  nor  the  mortgagee  should 


400  LIMITS   OF  THE   CONTRACTUAL   OBLIGATION. 

obtain   further  insurance,    without   its   consent,    we   do    not   know, 
though  it  is  evident  such  a  stipulation  would   be  a  wise  precaution. 

The  history  of  the  Robert  Case,  in  9  Wend,  singularly  illustrates 
the  injustice  of  attempting  to  base  a  judgment  against  an  insurance 
company,  in  favor  of  the  mortgagor,  upon  the  equities  of  his 
assignee.  In  that  case,  the  judgment  was  rendered  in  favor  of 
Robert,  the  mortgagor,  for  the  use  of  Bolton,  his  assignee,  on  the 
ground  that,  though  Robert  had  violated  the  policy,  this  could  not 
prejudice  Bolton.  After  the  rendition  of  the  judgment,  and  before 
its  payment,  Robert  paid  oft  the  mortgage,  and  threatened  the 
insurance  company  with  an  execution  The  company  moved  the 
court  for  a  perptual  stay,  which  was  granted,  the  court  holding, 
consistently  with  its  former  ruling,  that  Robert  had  no  equitable 
rights  under  the  policy.  9  Wend.  404  and  474.  From  this  order 
an  appeal  was  taken  to  the  court  for  the  correction  of  errors,  and 
that  court  held,  as  the  original  judgment  was  unreversed,  it  was 
conclusive  upon  the  rights  of  the  parties,  and,  as  the  mortgage  had 
been  paid,  the  benefit  of  the  judgment  reverted  to  Robert,  the  mort- 
gagor. He  thus  received  the  full  benefit  of  the  policy,  although  he 
had  forfeited  all  rights  under  it,  and  a  judgment  had  been  rendered 
in  his  favor  only  in  consequence  of  the  equities  of  his  assignee. 
17  Wend.  631. 

It  is,  in  our  opinion,  very  clear,  if  we  attempt  to  dispose  of  cases 
of  this  character  on  the  theory  that  the  assignment  is  to  be  treated 
as  a  new  policy,  issued  directly  to  the  mortgagee,  for  his  exclusive 
benefit,  and  to  adjust  the  rights  of  these  parties  in  accordance  with 
what  we  may  suppose  such  a  policy  would  contain,  we  shall  be  wan- 
dering in  a  labyrinth  where  there  would  be  but  one  thing  certain, 
and  that  is,  that  great  injustice  would  be  done  these  companies. 
We  should  practically  be  enforcing  liabilities  against  them  which 
they  never  intended  to  incur,  and  giving  to  the  mortgagor  the 
benefit  of  a  policy  in  which  he  has  forfeited  all  his  rights.  We  deem 
it  safer  and  more  just  to  say,  that  where  a  policy  is  assigned  as 
collateral  to  a  mortgage,  though  with  the  consent  of  the  company, 
the  assignee  takes  it  subject  to  the  conditions  expressed  upon  its 
face,  or  necessarily  inhering  in  it,  and  that  no  recovery  can  be  had 
merely  in  consequence  of  the  equities  of  the  assignee,  if  the  assignor 
has  lost  the  right  to  recover  by  violating  the  terms  of  the  contract. 

The  evidence,  offered  to  show  that  the  plaintiff  set  the  building 
on  fire,  should  have  been  admitted,  and  the  instruction  asked  for 
defendants,  in  regard  to  the  effect  of  a  second  insurance,  should 
have  been  given. 

Judgment  reversed. 


ASSIGNMENT.  4OI 

b.  Marine  Insurance. 

WAKEFIELD  v.  MARTIN  AND  TRUSTEES. 

3  Mass,  558.' 

William  C.  Martin,  being  indebted  to  James  Scott  in  the  sum 
of  $5,000,  and  having  shipped  a  parcel  of  goods  on  board  the  ship 

-,  upon  which  he  had  eftected  a  policy  of  insurance,  in  order  to 

secure  Scott,  assigned  the  bills  of  lading  and  the  policy  to  him  by 
a  blank  indorsement.  A  total  loss  happened.  The  plaintiff,  a 
creditor  of  Martin,  summoned  Welles,  one  of  the  underwriters,  as 
trustee  of  Martin;  Welles  having  no  knowledge  of  the  assignment 
to  Scott.  The  question  was,  whether  this  assignment  to  a  creditor, 
without  notice  to  the  underwriters,  was  good  so  far  as  to  vest  a 
property  in  the  assignee,  and  thus  preclude  an  attachment. 

Mr.  Parsons,  for  Scott,  contended  that  the  assignment  was  good 
and  perfect  between  the  assignor  and  assignee,  and  vested  an  equi- 
table right  in  the  latter;  and  although,  if  the  underwriters  had 
actually  paid  the  loss  to  Martin  without  notice  of  the  assignment, 
they  would  have  been  discharged,  yet  that  an  attaching  creditor 
was  in  no  better  condition  than  the  assignor  himself. 

Mr.  Ames.,  for  the  plaintiff,  contended  that  a  policy  of  insurance 
was  not  assignable;  that  it  was  a  mere  chose  in  action.,  and  by  law  no 
property  vested  in  the  assignee;  that  the  assignor  might  revoke  the 
authority,  or  might  release  and  discharge  the  underwiters;  that  the 
attaching  creditor  stepped  in  with  the  authority  of  the  law,  and 
effected  this  revocation;  and  that  a  contrary  doctrine  would  intro- 
duce great  frauds. 

The  Court,  after  taking  time,  pronounced  their  opinion  unani- 
mously., that  the  assignment,  though  without  the  knowledge  or  assent 
of  the  underwriter,  vested  an  equitable  right  in  the  assignee;  and, 
therefore,  they  discharged  the  trustees." 


'  No  date;   probably  about  1800. 

^"  It  is  only  by  force  of  the  special  clause,  prohibiting  an  assignment  of  the 
interest  of  the  assured  in  the  policy,  or  in  the  property  insured,  without  the 
consent  of  the  insurers,  that  a  forfeiture  of  the  policy  is  claimed  to  have 
occurred.  In  the  absence  of  such  provision,  an  assignment  of  property  and 
policy,  in  marine  insurances  (however  it  may  be  in  regard  to  fire  policies),  is 
valid,  and  the  policy  remains  in  force  for  the  benefit  of  the  assignee,  although 
there  is  no  notice  of  the  assignment  given  to  the  insurers.  Wakefield  v.  Martin, 
3  Mass.  558;  Earl  v.  Shaw,  r  John.  Cases.  313;  Powels  v.  Iiines,  11  M  &  VV.  10; 
3  Kent's  Com.  261-275;  2  Am.  Leading  Cases,  ist  ed.,  309-314."  —  Hitchcock  v. 
Ins    Co.,  26  N.  Y.  68,  69. 

LAW  OF  INSURANCE —  26 


402  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

POWLES  AND  OTHERS  ?-.  INNES. 

II  Meeson  &  Welsby,  io.  —  1843. 

\^Reported  hereiit  at  p.  5.] 


c.  Life  Insurance. 
STEINBACK  v.  DIEPENBROCK. 

158  N.  Y.  24.  —  iSgq. 

This  action  was  brought  to  recover  the  proceeds  of  a  certain 
policy  of  insurance  for  ^10,000,  issued  on  the  life  of  Alois  Diepen- 
brock,  appellant's  testator,  by  the  Equitable  Life  Assurance  Society 
of  the  United  States.  The  amount  due  thereon  was  claimed,  on 
the  one  hand,  by  the  plaintiff  as  assignee,  and,  on  the  other  hand, 
by  the  defendant  Louise  Diepenbrock,  as  executrix  of  the  estate  of 
Alios  Diepenbrock,  deceased.  The  plaintiff  brought  suit  against 
the  insurance  company  to  recover  the  amount  due  upon  the  policy. 
The  company,  admitting  its  liability  to  some  one,  paid  the  money 
into  court  and  procured  the  defendant  Louise  Diepenbrock,  as 
executrix,  to  be  substituted  as  defendant,  together  with  William 
Erdtmann,  the  original  assignee  of  the  policy,  who  had  assigned  it 
to  the  plaintiff.     Further  facts  are  stated  in  the  opinion. 

Parker,  Ch.  J.  —  The  counsel  for  the  appellant  in  his  argument 
insisted  with  great  earnestness  and  force  that  the  position  several 
times  asserted  by  this  court  in  support  of  the  legality  of  the  assign- 
ment of  a  policy  of  insurance  to  a  person  having  no  insurable  inter- 
est in  the  life  of  the  insured,  is  a  mistaken  one  and  in  conflict  with 
the  decisions  of  the  United  States  Supreme  Court  and  the  court  of 
last  resort  in  many  of  the  States. 

Waruflcks .  Davis^  104  U.  S.  775;  Frankli/i  v.  Hazzard,  41  Ind.ii6; 
Missouri  Co.  v.  Sturges,  18  Kan.  116;  Schoenfieldv.  Turner.^  75  Tex. 
334;  Baxse  V.  Adams,  81  Ky.  368,  and  Helmetig  v.  Miller,  81  Ala. 
183,  furnish  support  for  his  assertion  as  to  the  rule  in  the  United 
States  Supreme  Court  and  in  some  of  the  other  States.  Supported 
by  these  authorities,  the  counsel  challenged  the  correctness  of  the 
rule  that  concedecHy  has  been  long  acquiesced  in  in  this  State  by 
the  courts  and  the  profession.  Indeed,  Mr.  Justice  Field  in  his 
opinion  in  Warnock  v.  Davis,  supra,  stated  the  rule  in  this  State  to 
be  that  a  valid  assignment  of  a  policy  of  insurance  could  be  made 
to  a  person  without  interest  in  the  insured.  But  the  appellant  con- 
tends that,  while  this  may  be  the  rale  here,  the  decisions  in  other 
jurisdictions  demonstrate  that  our  positi  'n  is  wrong  as  a  matter  of 


ASSIGNMENT.  4O3 

sound  public  policy,  and,  therefore,  the  true  rule  should  be  laid 
^down,  notwithstanding  that  expressions  inducing  the  belief  that  the 
abov.e  rule  obtained  may  have  been  made  by  our  courts.  It  is  urged 
that  this  task  will  not  be  a  difficult  one  for  the  reason,  as  the  appel- 
lant contends,  that  there  have  been  no  cases  in  this  State  where  the 
question  was  necessarily  up  for  decision,  and,  therefore,  all  that  has 
been  said  upon  that  subject  by  this  court  is  mere  dictum. 

In  S/.  John  v.  Am.  L.  I.  Co.,  13  N.  Y.  31,  a  recovery  in  favor  of 
the  plaintiff  against  an  insurance  company  was  sustained  where  it 
appeared  that  one  Noyes  had  effected  policies  of  insurance  upon  his 
own  life  and  shortly  afterwards  assigned  them  to  the  plaintiff  for  a 
valuable  consideration.  In  the  answer  the  defendant  alleged,  by 
way  of  defense,  that  the  plaintiff  was  entitled  to  recover  only"  the 
amount  of  money  that  he  had  advanced  as  a  consideration  of  the 
transfer  of  the  policy  to  him,  and  that  if  defendant  was  liable 
beyond  such  amount  upon  the  policy,  the  personal  representatives 
were  interested  in  the  excess,  and,  therefore,  necessary  parties  to 
the  suit.  And  upon  the  close  of  the  evidence  the  counsel  for  the 
defendant  pressed  the  point  that  the  plaintiff  had  no  insurable  inter- 
est in  the  life  of  the  insured,  and,  therefore,  was  not  entitled  to 
judgment.  The  court  regarded  the  question  as  one  necessary  to  be 
passed  upon  in  the  final  disposition  of  the  case,  and  after  consider- 
ing it,  held  that  the  policies  in  question  were  valid  in  their  incep- 
tion and  that  the  assignment  of  them  to  the  plaintiff  did  not  affect 
the  liability  of  the  company,  and  that  to  entitle  the  assignee  to  a 
recovery  it  was  not  necessary  for  him  to  have  had  an  insurable 
interest  in  the  life  of  the  insured. 

The  next  case  was  Valton  v.  N.  F.  L.  A.  Co.,  20  N.  Y.  32,  where 
Schumacher  obtained  a  policy  on  his  life  for  $10,000,  and  by  his 
articles  of  copartnership  agreed  that  the  plaintiff  and  another  part- 
ner should  become  the  owners  of  the  policy  and  all  due  thereon  in 
the  event  of  his  death  before  the  termination  of  the  partnership. 
This  contingency  happened,  and  the  court  held  that  it  operated  to 
vest  absolutely  the  title  to  the  policy  in  the  plaintiff  and  his  other 
partner  and  a  recovery  could  be  had  thereon  as  against  the 
defendants. 

It  will  be  observed  that  in  the  cases  cited  the  contest  was  between 
the  assignee  and  the  company  issuing  the  policy,  and  the  question 
was  not  squarely  presented  whether,  as  between  the  assignor  and 
the  assignee,  the  assignee  would  be  entitled  to  retain  more  than  the 
sum  actually  invested  by  him,  which  is  the  rule  in  some  jurisdic- 
tions. But  it  nece.ss^iril V  was  decided  that  the  policy  was  not  ren- 
dered  invalid    by   the   assignment,    and   further   that   the    assignee 


404  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

acquired  thereby  the  riglit  to  enforce  collection  of  the  full  amount 
of  the  policy  from  the  company. 

In  Oliiisicad  v.  Kevt's,  85  X.  Y.  593,  the  plaintiff,  having  obtained 
the  proceeds  of  a  policy  of  life  insurance,  brought  an  action  for  the 
purpose  of  ascertaining  and  determining  the  conflicting  claims  of 
various  defendants  to  the  moneys  paid  on  the  policy.  It  appeared 
that  Keyes  procured  a  policy  of  insurance  on  his  life,  payable  to  the 
plaintiff  as  trustee  for  his  wife  Huldah;  Huldah  died  intestate  a  few 
years  later;  afterwards  Keyes  married  again  and  thereupon  the 
plaintiff  for  value  assigned  the  policy  to  Keyes'  second  wife  at  his 
request.  Keyes  subsequently  died  intestate,  leaving  him  surviving 
his  widow  and  one  child  by  her  and  several  children  by  his  first 
wife.  It  was  held  that  during  the  life  of  the  first  wife  the  policy 
was  her  property;  upon  her  death  the  title  vested  in  her  husband 
as  survivor,  and  he  having  caused  it  to  be  assigned  to  his  second 
wife,  the  assignment  vested  the  title  in  her  and  she  alone  was  enti- 
tled to  the  money  due  thereon.  There  was  a  difference  of  view  in 
the  court  as  to  the  disposition  of  the  case,  and  the  argument  that 
led  to  the  decision  considered  with  care  the  assignability  of  a  policy 
of  life  insurance  like  any  other  contract;  in  the  course  of  the  argu- 
ment the  court  referred  to  and  considered  many  authorities  in  Eng- 
land and  in  this  country  and  reached  the  conclusion  that  while  an 
insurable  interest  is  necessary  to  enable  one  to  take  out  a  policy  of 
insurance  on  the  life  of  another,  it  is  not  necessary  that  the  assignee 
of  a  policy  validly  issued  should  have  such  an  interest.  After  care- 
ful examination  of  that  opinion  we  find  it  impossible  to  reach  any 
other  conclusion  than  that  it  was  intended  to  put  at  rest  whatever 
controversy  there  may  have  been  in  this  State  touching  the  assign- 
ability of  a  valid  policy  of  insurance.  The  case  at  bar  is  the  only 
one  we  know  of  where  the  rule  laid  down  in  the  case  last  referred 
to  has  been  seriously  questioned,  although  it  is  true  that  some  dis- 
cussion of  the  principle  was  had  in  Wright  v.  M.  B.  L.  A.  of  A.,  118 
N.  Y.  237,  where  the  defendant  unsuccessfully  challenged  the  right 
ot  the  assignee  to  recover  on  the  ground,  among  others,  that  the 
plaintiff  had  not  an  insurable  interest  in  the  life  of  the  insured  at 
the  time  of  the  assignment;  the  court  in  its  opinion  cited  the  case 
of  Olmsted  w  Keyes ^  supra. 

The  result  of  our  further  examination  persuades  us  that  what  has 
been  understood  to  be  the  rule  in  this  State  is  not  only  in  line  with 
the  authorities  in  most  jurisdictions  upon  that  subject,  but  is  sound 
as  a  matter  of  public  policy.  It  was  formerly  the  rule  in  England 
that  while  a  policy  of  insurance  could  not  be  assigned  at  law  it 
could  in  equity.     By  the  act  of   1867  (30,  31  Vict.,  c.  144)  a  policy 


ASSIGNMENT.  405 

of  life  insurance  was  made  assignable  at  law,  and  in  some  of  the 
decisions  it  was  said  by  the  court  that  the  object  of  the  statute  was 
to  enable  the  assignee  to  sue  in  his  own  name;  but  it  did  not  in  r.ny 
other  way  improve  the  position  of  the  assignee,  who  could  before 
that  secure  the  money  in  equity.  B.  E.  I.  Co.  v.  T.  \V.  R.  Co..,  38 
L.  J.  Ch.  132;  ///  re  Turcaii,  L.  R.  (40  Ch.  D.)  5. 

The  rule  asserted  by  this  court  has  also  been  held  to  be  the  law 
in  many  of  our  sister  States  in  a  number  of  cases  where  the  question 
has  been  raised  either  in  actions  brought  by  personal  representatives 
of  the  assignor  to  recover  the  money  received  by  the  assignee  on  a 
policy,  or  in  suits  brought  by  the  company  issuing  the  policy  for 
the  purpose  of  determining  whether  the  personal  representatives  or 
the  assignee  were  entitled  to  the  proceeds,  all  claimants  being 
made  parties  defendant.  Mut.  Co.  v.  Allen.,  138  Mass.  24;  Eckels. 
Renner.,  41  Ohio  St.  232;  Martin  v.  Stubbings,  126  III.  387,  403;  Fitz- 
patrick  V.  Hartford  Co..,  56  Conn.  116;  Clark  v.  Allen.,  11  R.  I.  439; 
Murphy  V.  Red.,  64  Miss.  614;  Rittler  v.  Smith,  70  Md.  261.  These 
authorities  are,  it  seems  to  us,  well  grounded  in  principle.  They 
recognize  not  only  the  existence  of,  but  the  necessity  for,  the  rule 
that  forbids  any  insurance  upon  the  life  of  a  person,  in  which  the 
person  for  whose  benefit  the  insurance  is  made  has  no  interest. 
Such  a  policy  constitutes  what  is  termed  a  wager  policy,  or  a  mere 
speculative  contract  upon  the  life  of  the  insured,  with  a  direct 
interest  in  favor  of  its  early  termination.  It  is,  in  terms,  forbidden 
by  statute  in  England  (14  Geo.  III.,  c.  48)  and  in  many  other  juris- 
dictions, including  this  State  (Laws  1892,  chap.  690,  §  55),  and  this 
court  held  in  Ruse  v.  Mutual  Benefit  Insurance  Company,  23  N.  Y. 
516,  that  such  insurance  is  void  at  common  law,  and  that  the  Eng- 
lish statute,  in  so  far  as  it  prohibits  such  insurance,  is  merely  a 
declaratory  act  But  the  question  we  are  considering  presupposes 
a  valid  contract  of  insurance,  the  policy  being  issued  either  for  the 
benefit  of  the  assured  personally,  or  for  the  benefit  of  some  one 
having  an  insurable  interest  in  the  assured  at  the  time  of  the  taking 
out  of  the  policy.  Such  a  policy  constitutes  a  contract  to  pay  a 
certain  amount  of  money  to  the  payee  on  the  death  of  the  assured. 
It  is  a  chose  in  action  with  all  the  ordinary  incidents  belonging 
thereto,  and  as  such  may  be  assigned  either  as  collateral  or  abso- 
lutely, as  the  payee  may  elect.'     While  an  insurable  interest  in  the 


'  The  general  rule  in  New  York  upon  the  assignability  of  life  policies  is  sub- 
ject to  modification  where  a  wife  attempts  to  assign  a  policy  issued  in  her  favor 
upon  the  life  of  her  husband.  Chap.  80,  Laws  1840  (since  followed  by  various 
amendatory  acts  and   now  embodied   in  §  22  of   the   Domestic  Relations  Law)» 


406  LIMITS   OF   THE   CONTRACTUAL   OBLIOATION. 

payee  is  necessary,  in  the  first  instance,  to  the  creation  of  a  valid 
contract,  it  is  not  necessary  that  such  interest  should  continue. 
The  case  of  a  wife  divorced  from  her  husband  will  serve  as  an  illus- 
tration. The  policy  taken  out  for  her  benefit  during  the  existence 
of  the  married  relation  is  not  affected  by  a  subsequent  stiverance 
of  that  relation  through  a  decree  of  a  court  of  competent  jurisdic- 
tion by  which  she  ceases  to  have  an  insurable  interest  in  his  life. 
Connectiiut  Mutual  Life  Ins.  Co.  v.  Sc/uii'/er,  94  U.  S.  457.  The 
materiality  of  the  value  of  the  interest  has  relation  to  the  question 
whether  the  policy  is  taken  out  in  good  faith,  and  not  as  a  gambling 
transaction.  If  it  be  taken  out  in  good  faith,  then  a  sound  public 
policy  would  seem  to  require  that  the  payee  should  be  permitted  to 
treat  it  as  he  may  any  other  chose  in  action  and  go  to  the  bes: 
market  he  can  find,  either  to  sell  it  or  borrow  money  on  it.  Ii 
would  substantially  confine  him  to  such  terms  as  the  company  issu- 
ing the  policy  should  choose  to  make  with  him,  if  he  should  b.- 
limited  in  his  choice  of  a  purchaser  to  the  party  having  an  interest 
in  the  continuance  of  the  life  of  the  assured. 

On  the  other  hand,  it  is  said  that  if  the  payee  of  a  policy  be 
allowed  to  assign  it,  a  safe  and  convenient  method  is  provided  by 
which  a  wagering  contract  can  be  safely  made.  The  insured, 
instead  of  taking  out  a  policy  payable  to  a  person  having  no  insur- 
able interest  in  his  life,  can  take  it  out  to  himself  and  at  once  assign 
it  to  such  person.  But  such  an  attempt  would  not  prove  successful, 
for  a  policy  issued  and  assigned,  under  such  circumstances,  would 
be  none  the  less  a  wagering  policy  because  of  the  form  of  it.  The 
intention  of  the  parties  procuring  the  policy  would  determine  its 
character,  which  the  courts  would  unhesitatingly  declare  in  accord- 
provided  that  a  wife  might  take  out  a  policy  upon  the  life  of  her  husband,  etc. 
By  a  process  which  seems  to  be  an  example  of  judicial  legislation,  the  Court  of 
Appeals  has  held  that  such  policies  are  not  assignable.  \n  Romaine  v.  Chauncev, 
129  N.  Y.  566,  574,  Judge  Finch,  in  the  course  of  his  opinion,  though  merely  for 
purposes  of  illustration,  has  epitomized  the  New  York  doctrine  as  follows: 
*'  Policies  of  life  insurance  in  favor  of  the  wife  on  the  life  of  the  husband  we 
have  persistently  held  to  be  non-assignable.  Eadie  v.  Sliimnon,  ib  N.  Y.  9. 
We  determined  that  their  peculiar  character  and  purpose  necessarily  took  from 
ihem  the  chief  and  most  important  characteristic  of  property  in  general.  As  I 
read  the  later  case  of  Baron  v.  Brumme>\  100  N.  Y.  372,  we  distinctly  held  '  that 
such  policies  should  not  be  subjected  to  the  lien  of  creditors  either  of  husband 
or  wife;  as  to  the  former  by  the  express  words  of  the  statute,  and  as  to  the  latter 
by  the  determination  of  the  courts.'  We  took  from  them  the  transferable  charac- 
teristic of  property  as  such  and  tied  them  closely  to  their  lawful  object  and 
purpose."  On  the  contrary,  in  Maryland,  where  there  was  subslaniially  the 
same  legislation,  the  court  said-  "  We  cannot  recognize  the  decisicm  in  Eaait 
V.  Slimmon  as  law  in  this  State."  —  Emerick  v.  CoakUy\  35  Md.  192. 


ASSIGNMENT.  407 

ance  with  the  facts,  reading  the  policy  and  the  assignment  together, 
as  forming  part  of  one  transaction. 

Cammack  v.  Letcis,  15  Wall.  643/  and  JVarnock  v.  Davis,  104  U. 
S.  775,  were  cases  where  the  policies  were  taken  out  in  order  that 
they  might  be  assigned  to  the  assignees,  through  their  procurement, 
under  circumstances  that  might  well  be  held  to  be  in  evasion  of  the 
law  prohibiting  gaming  policies. 

In  IVarnock's  Case  the  agreement  touching  the  procurement  of 
the  policy  and  the  use  to  be  made  of  it,  including  the  promise  to 
assign  it,  was  in  writing,  and  executed  the  very  day  the  policy  was 
applied  for,  and  the  day  following  the  assured  executed  an  assign- 
ment of  the  policy,  which  had  in  the  meantime  been  issued  in  pur- 
suance of  such  an  agreement.  The  insurance  company  paid  over 
the  money  to  the  assignee,  and  the  court  held  that  the  personal 
representatives  of  the  assured  were  entitled  to  receive  from  the 
assignees  all  the  money  except  the  sums  advanced  by  them  under 
the  agreement,  plus  the  sum  paid  by  them  to  the  widow.  In  the 
opinion  it  is  said  that  the  assignment  of  the  policy  to  a  party  not 
having  an  insurable  interest  is  as  objectionable  as  the  taking  out  of 
a  policy  in  his  name.  That  remark  was  clearly  true  as  applied  to 
the  facts  of  that  case,  for  the  policy  was  taken  out  in  pursuance  of 
an  agreement  to  assign  it.  It  was,  therefore,  in  fact  a  policy  taken 
out  for  the  benefit  of  parties  having  no  insurable  interest,  although 
in  form  issued  to  the  assured  and  by  him  assigned  to  such  parties. 
In  such  case  the  court  will  always  declare  the  fact  to  be  as  it  is, 
without  regard  to  the  effort  of  the  parties  to  hide  the  truth  and 
cheat  the  law.  But  the  language  employed  by  the  court,  and  evi- 
dently advisedly,  is  broad  enough  to  cover  all  assignments  of  poli- 
cies to  parties  not  having  an  insurable  interest,  including  as  well 
those  taken  out  in  good  faith  and  kept  up  as  long  as  the  financial 
condition  of  the  insured  permits,  as  those  deliberately  taken  out  for 
the  purpose  of  speculation  upon  a  life  that  the  intended  beneficiary, 
whether  as  payee  in  the  policy  or  by  assignment,  has  no  interest  in  pro- 
longing. The  pointof  actual  separation  between  the  cases  asserting  the 
assignability  and  those  asserting  the  non-assignability  of  policies  of 
insurance  to  persons  not  interested  in  the  continuance  of  the  life  of 
the  assured,  seems  to  be  that  those  asserting  non-assignability  pro- 
ceed on  the  assumption  that  the  question  is  one  of  law,  and  that  if 
a  policy  is  not  assignable  in  one  case,  it  cannot  be  in  any  case; 
while  in  the  other  line  of  cases  the  underlying  principle  is  that  all 
valid  contracts  are  assignable,  but  that  contracts  are  not  necessarily 

'  Cammack  v.  Lewis,  is  siated  and  discussed,  ante,  pp.  65,  66. 


408  LIMITS   OF   THE   CONTRACTUAL   OBLIGATION. 

valid  and  free  from  the  taint  of  gambling  because  upon  their  face 
tliey  appear  to  be  regularly  and  properly  issued.  In  order  to  ascer- 
tain the  truth  all  the  facts  and  circumstances  may  be  proved,  and 
if  it  then  appear  that  the  parties  intended  by  the  contract  to  enable 
a  third  and  uninterested  party  to  speculate  upon  the  life  of  another, 
the  court  will  declare  such  contract  invalid,  not  because  of  the 
assignment,  but  in  spite  of  it. 

Warnock's  Case  and  this  one  are  very  wide  apart  in  their  facts  and 
serve  very  well  to  illustrate  the  necessity  for  the  position  taken  by 
the  courts  of  this  State  upon  this  general  subject. 

In  December,  1887.  Alois  Diepenbrock  took  out  a  policy  of  insur- 
ance on  his  life  in  the  Equitable  Life  Assurance  Society.  He  paid 
the  premiums  regularly  down  to  December,  1892,  a  period  of  about 
five  years,  at  which  time  the  surrender  value  of  the  policy  was  about 
$485.  He  was  pressed  for  money  and  finally  sold  the  policy  to  the 
defendant  Erdtmann  for  $600,  or  something  like  $115  more  than  he 
w  )ulJ  have  received  by  the  surrender  of  the  policy  to  the  company. 
He  had  paid  a  much  larger  sum  in  premiums,  something  over  $2,000^ 
and  there  seems  to  be  no  good  reason  why  a  person  owning  such  a 
policy  and  obliged  to  sell  it,  should  not  be  permitted  to  get  back  as 
much  as  possible  of  the  money  that  he  has  paid  out  for  insurance. 
His  condition  of  health  may  have  changed  very  materially,  of  which 
fact  the  company  can  take  no  advantage;  for  in  its  contract  it  made 
allowance  for  that  possibility.  There  is  no  good  reason  for  saying 
that  an  insured  person  should  not  have  the  right,  whenever  his 
necessities  press  him  because  of  a  failing  condition  of  health  that 
assures  a  speedy  death,  to  realize  on  his  policy  and  obtain  for  it 
something  like  a  fair  price,  which  may,  perhaps,  be  almost  equal  ta 
its  face  value. 

The  personal  representatives  of  the  assured  contested  the  assign- 
ment also  on  the  ground  that  it  was  intended  as  collateral,  although 
in  form  a  valid  assignment,  but  the  Special  Term  found  otherwise, 
and  the  Appellate  Division  approved  that  finding,  so  that  question 
is  no  longer  open  for  consideration. 

Other  questions  are  presented  by  the  appellant,  but  after  a  care- 
ful examination  of  them  we  conclude  that  no  error  was  committed 
below  that  will  support  a  reversal  of  the  judgment. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur,  except  Martin,  J.,  absent. 

Judgment  affirmed.' 

'  "  It  is  well  settled  that  a  creditor  has  an  insurable  interest  in  the  life  of  his 
debtor,  but  the  natuie  and  extent  of  this  interest  has  become  a  seriously  com- 
plicated question.     Much  of  the  confusion  now  surrounding  this  subject  is,  we 


ASSIGNMENT.  409 

think,  attiib-utable  to  two  erroneous  views  which  have  been  entertained  and 
annojnced  by  quite  a  number  of  the  most  respectable  courts  and  judges  in  this 
country.  The  first  is,  that  a  contract  effecting  insurance  upon  ihe  life  of  a 
debtor  for  the  benefit  of  a  creditor  is  not  a  contract  of  indemnity;  and  the  sec- 
ond is,  that  the  creditor's  insurable  interest  in  the  debtor's  life  is  not  confined 
striclly  to  the  amount  of  indebtedness  to  be  secured.  Before  proceeding 
further,  it  may  be  remarked  that  the  form  in  which  the  transaction  is  clothed 
is  utterly  immaterial.  It  makes  not  a  particle  of  difference  whether  the  policy 
is  payable  to  the  insured,  or  his  estate,  with  an  assignment  to  the  creditor,  or 
payable  directly  to  the  creditor  as  the  nominated  beneficiary.  The  real  thing 
to  be  ascertained,  in  any  given  instance,  is,  what  was  the  actual  object  of  the 
parties;  for  by  this  test  alone  is  the  legality  of  what  they  did  to  be  determined. 
I.  Our  first  proposition  is,  that  effecting  insurance  for  the  purpose  of  securing 
an  indebtedness  is  a  contract  of  indemnity,  and  nothing  else.  We  have  the 
utmost  confidence  in  the  correctness  of  this  assertion.  Indemnity  is  the  only 
logical  end  to  be  obtained  by  a  transaction  of  this  kind.  What  possible  right 
has  a  creditor  to  be  the  beneficiary  of  such  insurance  except  to  protect  himself 
against  loss?  and  what  is  such  protection,  if  not  indemnity?  Notwithstanding 
the  fact  that  eminent  jurists  have  held  otherwise  than  as  above  laid  down,  we 
cannot  help  thinking  that  this  is  a  very  plain  proposition,  and  one  as  to  which 
there  ought  to  be  no  serious  difference  of  opinion."  —  Lumpkin,  J.,  in  Exchange 
Bank  v.  Loh,  104  Ga.  446.  See  also,  upon  the  assignment  to  a  creditor,  of  a  life 
policy,  as  security  for  a  debt,  the  extract  from  Judge  Little's  opinion  in  the  same 
case,  quoted  herein  at  p.  66,  note. 


PART  VI. 
Breach  of  Contract  by  the  Insurer. 


I.  Remedies. 
SKUDERA  V.  THE  METROPOLITAN  LIFE  INSURANCE  CO. 

17  Misc.  (N.  Y.)  367.  —  1896. 
(Supreme  Ct.,  Appellate  Term.) 

Appeal  from  a  judgment  of  nonsuit  rendered  by  the  District 
Court,  in  the  city  of  New  York,  for  the  Fourth  Judicial  District. 

BiscHOFF,  J. — The  action  was  in  assumpsit  to  recover  the  pre- 
miums paid  upon  five  several  policies  of  life  insurance  which  were 
alleged  to  have  been  wrongfully  forfeited  by  the  insurer;  and  the 
judgment  appealed  from  being  one  of  nonsuit,  the  plaintiff  is  entitled 
to  a  construction  of  the  evidence  most  favorable  to  her.  McNally 
V.  Pha'nix  Ins.  Co.,  137  N.  Y.  389. 

Observing  the  rule  stated,  the  case,  as  developed  upon  the  trial, 
was  that  during  the  years  1882  and  1883  the  plaintiff  effected  five 
policies  of  life  insurance  in  the  defendant  company,  upon  each  of 
which  policies  she  regularly  paid  the  weekly  premiums  as  they 
matured  until  March,  1895,  amounting  in  the  aggregate  to  $165.95; 
and  that  thereafter  the  defendant  unjustifiably  assumed  to  forfeit 
each  of  such  policies  for  nonperformance  of  a  condition  subsequent, 
to  wit:  The  payment  of  premiums  maturing  subsequently  to  those 
actually  paid. 

The  question  which  arose  upon  the  motion  of  the  defendant's 
counsel  for  dismissal  of  the  complaint  was  solely  with  regard  to  the 
plaintiff's  right  to  recover  m  assumpsit,  as  for  money  had  and  received 
by  the  defendant  to  her  use,  the  premiums  paid;  and  we  concur  in 
the  justice's  decision  that  the  plaintiff  had  mistaken  her  remedy. 

Granting  that  upon  the  defendant's  breach  the  plaintiff  could  treat 
the  contract,  with  regard  to  each  of  the  policies,  as  determined,  it 
does  not  follow  that  the  defendant  was  bound  ex  aquo  et  bono  to 
restore  the  premiums  received  by  it,  for  which,  in  part,  at  least,  the 

[410] 


BREACH    OF   CONTRACT   BY    THE   INSURER.  41I 

plaintiff  had  liaJ  value  in  the  risk  assumed  by  the  defendant. 
Plainly,  the  plaintiff  could  not  predicate  a  rescission  of  the  contract 
of  the  defendant's  breach  without  restitution  by  her  of  what  she  had 
received  under  the  contract,  and  a  contract  of  life  insurance  being 
essentially  indivisible  in  point  of  performance  by  either  of  the 
parties  thereto  {Cohen  v.  N.  Y.  Mat.  Life  Ins.  Co.,  50  N.  Y.  610), 
such  restitution  was  in  the  nature  of  things  impossible.  Wharton  on 
Contracts,  §  748;  Clark  on  Contracts,  774;  Hunt  v.  Silk,  5  East,  783. 

In  a  case  such  as  the  one  at  bar,  if  the  insured  is  unwilling  to 
await  the  maturity  of  the  policy  and  then  to  test  its  continued 
vitality,  only  two  remedies  are  available,  the  insured  may  either 
sue  at  law  for  damages  for  the  insurer's  breach  of  contract,  or 
prosecute  an  action  in  equity  to  have  the  policy  adjudged  to  be  in 
force  and  the  insurer  to  accept  the  premium  refused.  Sutherland 
on  the  Meas.  of  Dam.,  §  838;  Speer  v.  Phoenix  Mat.  Life  Ins.  Co., 
36  Hun,  323;  Day  v.  Conn.  Gen.  Life  Ins.  Co.,  45  Conn.  480;  29  Am. 
Rep.  693;  Hayner  v.  Am.  Pop.  Life  Ins.  Co.,  69  N.  Y.  435;  Cohen 
v.  N.   Y.  Mitt.  Life  Ins.  Co.,  supra. 

The  case  at  bar  should  be  distinguished  from  the  case  where  the 
failure  of  consideration  for  the  premiums  paid  is  entire  in  that  the 
risk  to  be  assumed  by  the  insurer  under  the  policy  never  attached, 
the  policy  being  avoided  for  noncompliance  with  a  condition  prece- 
dent, fraud,  or  other  causes.  11  Am,  &  Eng.  Ency.  of  Law,  345; 
Delavigne  v.  United  Ins.  Co.,  i  Johns.  Cas.  310;  Fulton  v.  Met.  Life 
Ins.  Co.,  4  Misc.  Rep.  76;  Miller  v.  Union  Cent.  Life  Ins.  Co.,  86 
Hun,  6. 

Judgment  affirmed,  with  costs. 

Daly,  P,  J.,  and  McAdam,  J.,  concur. 

Judgment  affirmed,  with  costs. 


VAN  WERDEN  v.  EQUITABLE  LIFE  ASSURANCE  SOC. 

99  Ia.  621.  —  1S96. 

From  the  petition  it  appears  that  September  19,  1891,  the  plain- 
tiff paid  to  the  defendant  society  the  sum  of  $500.40,  the  same 
being  three  annual  premiums  on  a  $3,000  bond  or  policy  of  insur- 
ance on  his  life,  which  policy  was  afterwards  issued  to  plaintiff;  that 
on  the  19th  day  of  September,  1892,  the  defendant  sent  to  plaintiff 
a  receipt  for  $166.80,  being  the  annual  premium  due  on  that  date; 
that  on  September  19,  1893,  the  defendant  demanded  of  plaintiff  the 
sum  of  $166.80,  being  the  third  annual  premium  o;i  said  policy, 
which  had  already  been  paid,  and  which  plaintiff  refused  to  again 


412  BREACH    OF   CONTRACT    BY   THE    INSURER. 

pay;  and  that  because  of  such  refusal  defendant  notified  plaintiff 
that  the  policy  was  not  in  force,  and  becauie  suspended  and  avoided 
because  of  the  nonpayment  of  the  third  annual  premium.  The 
petition  asks  to  recover  the  amount  originally  paid — $500.40  — 
with  interest.  At  the  close  of  the  entire  evidence  plaintiff  moved 
for  a  verdict  in  his  favor,  which  the  court  directed,  and  from  a  judg- 
ment thereon  the  defendant  appealed.     Affirmed. 

Granger,  J.—*  *  *  IV.  It  is  urged  by  appellant  that  the 
pl.aintiff  hav^ing  had  the  insurance  two  years,  there  could  be  no  recov- 
ery back  of  the  entire  premium  paid.  The  court  held  that  plaintiff, 
if  eatitled  to  recover,  was  entitled  to  the  entire  amount  paid,  with 
interest.  There  is  a  rule  that,  where  the  contract  has  once  taken  effect, 
there  is  ordinarily  no  law  to  sustain  a  recovery  of  premiums  paid. 
Cooke,  Life  Ins.,  §  104;  May,  Ins.,  §  567 ;  Bliss,  Ins.,  §  423.  In  sup- 
port of  the  rule  are  cited  Standley  v.  Insurance  Co.,  95  Ind.  254;  Insur- 
ance Co.  V.  Houser,  89  Ind.  258,  and  the  same  case  in  in  Ind.  266, 
12  N.  E.  479.  It  is  observed  that  the  rule  as  stated  is  the  ordinary 
one,  and  the  cases  supporting  the  text  are  generally,  if  not  entirely, 
based  on  facts  as  to  which  there  might  not  have  been  room  for 
doubt;  and  the  text  writers  from  whom  we  quote  make  such  dis- 
tinctions as  to  render  doubtful  the  application  of  the  rule  to  the 
facts  of  this  case.  From  some  language  in  the  latter  case,  cited 
from  Indiana,  it  would  seem  as  if  the  rule  there  stated  might  be 
doubted,  as,  because  of  its  former  application  to  the  case,  it  is  held 
to  be  the  law  of  it.  But,  however  that  may  be,  we  think  the  rule  for 
this  case  quite  definitely  settled.  In  Insurance  Co.  v.  AIcAden,  109 
Pa.  399,  I  Atl.  256,  the  company  wrongfully  revoked  the  policy 
that  had  run  for  ten  years.  The  action  was  to  recover  the  premiums 
paid,  and  it  was  held  that  there  could  be  a  recovery.  In  that  case 
there  had  been  no  advance  premiums  paid,  so  that  the  recovery  was 
sought  only  for  premiums  covering  the  time  when  the  policy  had 
been  in  force.  In  the  opinion  it  is  said:  "  In  the  case  at  bar  the 
rights  of  the  parties  under  the  contract  of  insurance  had  attached, 
but  the  plaintiff  had  never  received  any  actual  benefit  from  it.  They 
may,  in  some  sense,  perhaps,  be  said  to  have  enjoyed  the  protection 
which  the  policy  afforded  in  the  event  of  the  husband's  death;  but, 
as  that  event  did  not  occur,  the  policy  had  as  yet  been  of  no  appreci- 
able actual  advantage  to  the  plaintiff,  and  no  real  disadvantage  to 
the  defendant.  The  parties,  for  anything  that  appears,  upon  the 
plaintiff's  recovery  are  placed  precisely  in  the  same  situation  that 
they  were  before  the  contract  was  made;  for,  although  the  company 
had  carried  the  risk,  and  the  plaintiff,  Mary  A.  McAden,  at  all 
times  during  the  continuance  of  the  contract,  upon  the  happening 


BREACH    OF   CONTRACT   BY   THE    INSURER.  413 

of  the  event  provided  against  was  entitled  to  the  indemnity  it 
secured,  yet  the  company  has  paid  nothing  and  the  plaintiffs  have 
received  nothing.  As  in  the  case  of  any  other  contract,  the  parties 
were  entitled,  during  its  continuance,  according  to  its  terms.  The 
policy,  when  made,  was  admittedly  valid;  the  premiums  which  were 
paid  were  voluntarily  paid  upon  the  policy;  the  risk  had  been  run- 
ning for  ten  years;  the  obligations  of  the  contract  were  long  smce 
in  force  on  both  sides;  and  it  is  clear  that  plaintiffs  could  nol,  on 
their  own  mere  motion,  rescind  it  so  as  to  recover  back  the  premiums 
paid.  But  if,  after  receiving  the  several  premiums,  the  company, 
without  right,  refuses  to  receive  further  premiums  as  they  mature, 
■deny  their  obligation,  and  declare  the  contract  at  an  end,  the  plain- 
tiff, we  think,  may  take  the  defendants  at  their  word,  treat  the  con- 
tract as  rescinded,  and  recover  back  the  premiums  paid  as  so  much 
money  had  and  received  for  their  use."  Rescission  or  avoidance, 
properly  so  called,  annihilates  the  contract,  and  puts  the  parties  in 
the  same  position  as  if  ic  had  never  existed.  And  notice  that  a 
party  will  not  perform  his  contract  has  the  same  effect  as  a  breach. 
The  latter  proposition  is  supported  in  Ballon  v.  Billings,  136  Mass. 
307.  For  the  purposes  of  the  question  we  are  considering,  the  case 
at  bar  does  not  differ,  in  any  essential  fact,  from  the  Pennsylvania 
case.  In  McKee  v.  Insnrance  Co.,  28  Mo.  383,  it  is  said:  "  If  the 
defendant  [the  company]  wrongfully  determined  the  contract  by 
refusmg  to  receive  a  premium  when  it  was  due,  then  the  plaintiff 
had  a  right  to  treat  the  policy  as  at  an  end,  and  recover  back  all 
the  money  she  had  paid  under  it."  In  Insurance  Co.  v.  Garmany, 
74  Ga.  51,  it  is  said  that,  if  the  assured  makes  defaults  in  his  pay- 
ments, he  forfeits  all  his  payments,  with  the  interest  that  would  have 
accrued  thereon  from  the  time  of  payment.  It  then  holds  that 
when  the  company  violates  the  conditions  of  its  contract  it  is  liable 
to  return  to  the  assured  as  much  as  he  (the  assured)  would  lose 
because  of  the  breach  of  the  contract.  The  case  holds  that,  where 
the  company  violates  its  policy,  the  assured  may  recover  the  pre- 
miums paid,  with  interest.  The  case  cites  Insurance  Co.  v.  McAden 
and  McKee  v.  Insurance  Co.,  supra.  The  rule  of  those  cases  has  a 
clear  support  in  Meade  v.  Insurance  Co.,  51  How.  Prac.  i.  That 
such  a  rule  has  ample  support  on  authority  is  hardly  to  be  doubted. 
The  case  at  bar,  in  its  facts,  is  clearly  within  the  rule. 

It  is  urged  that  the  act  of  the  company  in  avoiding  the  policy 
could  not  affect  the  right  of  plaintiff  thereon  if  the  facts  did  not 
justify  the  avoidance.  That  may  be  true  as  a  legal  proposition,  but 
it  is  held  in  Insurance  Co.  v.  McAden,  supra,  that  the  assured  in  such 
a  case  may  take  the  insurance  company  at  its  word,  and  treat  the 


414  BREACH    OF   CONTRACT    RV   THE    INSURER. 

contract  as  rescinded.  The  authorities  sustain  the  rule  that  in  such 
a  case  the  assured  may  elect  whether  to  enforce  the  contract  or 
treat  it  as  rescinded,  and  recover  for  the  breach.  The  judgment  of 
the  District  Court  is  affirmed. 


2.  Measure  of  Damages. 

BARNEY  V.  DUDLEY. 

42  Kan.  212.  —  1889. 

Action  for  damages  for  conversion  of  a  life  insurance  policy. 

Clogston,  C.  — The  motion  for  a  rehearing  is  denied;  but,  inas- 
much as  this  case  goes  back  for  a  new  trial,  it  is  thought  better  to 
establish  the  rule  or  measure  of  damages  the  plaintiff  is  entitled  to 
if  she  should  recover.  The  plaintiff  had,  before  the  conversion 
of  this  policy,  paid  in  as  premiums  $803.60.  This  included  fourteen 
semi-annual  premiums  of  $57.40  each.  Now,  to  establish  this 
sum  as  the  plaintiff's  measure  of  recovery,  with  interest,  would  be 
to  allow  the  insured  free  insurance  during  the  seven  years  in  which 
premiums  have  been  paid.  This  rule  would  not  be  a  correct  one, 
for  the  insured  would  have  paid  no  consideration  for  the  insurance 
during  that  period  of  time.  The  general  rule  is,  as  between  the 
insured  and  the  insurance  company,  when  the  company's  business 
is  wound  up,  or  a  policy  is  cancelled,  where  an  action  is  brought  for 
damages,  that  the  measure  of  damages  is  the  difference  between  the 
rate  of  premium  paid  for  the  old  insurance  and  what  another  com- 
pany of  equal  credit  and  standing  would  charge  to  issue  a  new  policy 
on  the  same  life,  and  the  difference  in  the  rates  of  premium  calcu- 
lated upon  his  expectancy  of  life.  This  is  upon  the  ground  that  the 
insured  is  placed  in  as  good  a  condition  as  he  was  before  his  policy 
was  cancelled.  This  seems  just  and  equitable.  People  v.  Life  Ins. 
Co.,  78  N.  Y.  114;  Bell's  Case,  L.  R.  (9  Eq.)  717;  Life  Ins.  Co.  v. 
Binford,  78  Va.  103;  Phoenix  Ins.  Co.  v.  Baker,  85  111.  410.  But  it 
is  claimed  that  this  rule  is  not  an  equitable  one  as  applied  to  the 
facts  of  this  case.  It  is  shown  here  that  Barney,  by  reason  of  ill- 
health,  is  now  non-insurable.  This,  then,  presents  a  different 
question,  a  question  that  has  been  discussed  in  many  courts,  and 
always  a  conclusion  reached  with  doubts  as  to  its  correctness.  The 
rule  above  stated  we  think  not  equitable  as  applied  to  this  case,  for 
this  reason:  The  insured,  at  the  time  of  taking  the  insurance,  does 
it  upon  the  thought  and  reason  that  disease  and  sickness  are  likely 
to  happen  to  him.     Insurance  would  be  effected  upon  few  lives,  we 


BREACH    OF   CONTRACT    BY   THE   INSURER.  415 

think,  if  the  insured  was  certain  that  no  such  mishap  would  overtake 
him,  and  that  only  by  old  age  would  death  come;  and  insurance 
companies  insure  each  individual  with  this  in  view.  The  premiums 
are  figured  upon  a  contingency  of  accident,  sickness,  and  prema- 
ture death,  and  now  to  apply  this  rule  to  this  case  would  leave  the 
plaintiff  robbed  of  a  part  of  the  contract  against  accident  and  pre- 
mature decay,     Holdich's  Case,  L.  R.  (14  Eq.)  79. 

Again,  to  establish  a  rule  that  would  make  the  tables  of  mortality 
the  only  evidence  of  the  number  of  premiums  the  plaintiff  would  be 
compelled  to  pay,  and  deduct  these  premiums  from  the  face  of  the 
policy,  would  practically  deprive  the  plaintiff  of  the  very  thing  that 
insurance  was  taken  to  guard  against,  and  plaintiff  would  recover  no 
benefit  by  reason  of  the  ill-health  of  the  insured  which  prevents 
reinsurance.  This  general  rule  is  held  to  apply  to  both  classes  in 
the  case  of  People  v.  Life  Ins.  Co.,  78  N.  Y.  114;  but  that  was  a  case 
where  the  insurance  company  was  going  out  of  business,  and  was 
closing  up  its  affairs,  and  the  court  established  that  general  rule  in 
that  case  because  of  the  impossibility  and  impracticability  of  ascer- 
taining the  state  of  health  of  each  person  holding  a  policy  therein. 
The  defendants  in  this  case  stand  upon  a  different  footing  from  the 
insurance  company  in  that  case.  Here  the  insurance  company  is 
still  carrying  the  policy,  and  the  defendants  will  receive  the  benefit 
from  it.  They  have  elected  to  appropriate  and  withhold  this  policy 
from  the  plaintiff,  seeking  to  pay  the  premiums,  and  finally  to 
recover  at  the  death  of  Barney.  Whan  they  place  themselves  volun- 
tarily in  this  position,  they  cannot  complain  if  the  strongest  rule  is 
held  against  them. 

It  is  said  in  People  v.  Life  Ins.  Co.,  supra:  "  But  the  health  of  the 
policy-holder  may  since  his  insurance  have  become  so  impaired  that 
his  life  is  not  now  reinsurable,  and  hence  in  his  particular  case  the 
value  to  be  arrived  at  upon  this  basis  (speaking  of  the  general  rule) 
would  not  be  the  measure  of  his  damage."  So  we  think  as  applied 
to  these  defendants  the  rule  ought  to  be  such  as  will  give  the  plain- 
tiff the  full  value  of  the  policy  at  the  time  of  its  conversion,  with 
interest.  Ho^v  to  arrive  at  this  value,  as  we  said  before,  is  a  diffi- 
cult question  —  one  surrounded  with  uncertainties,  depending  up:)n 
the  opinions  of  persons  or  insurance  companies;  but,  as  before  said, 
the  defendants  voluntarily  assumed  the  risk,  and  they  cannot  com- 
plain. We  therefore  think  the  general  rule  above  stated  applicable 
to  this  case,  with  the  modification,  that  if  Barney  is  not  insurable  by 
reason  of  ill-health  or  accident,  that  fact  may  be  shown  to  reduce 
his  expectancy.  It  may  also  b?  shown  by  experienced  and  exoert 
insurance   men   that  by  reason  of  the  ill-health  of  the  insured  a 


4l6  BREACH    OF   CONTRACT   BV   THE    INSURER. 

greater  rate  of  premium  would  be  required  to  reinsure  him  on 
account  of  the  shortened  expectancy  of  his  life.  All  these  things 
may  be  given  for  the  purpose  of  aiding  the  jury  in  determining  his 
expectancy,  and  in  this  way  determining  tiie  actual  value  of  the 
policy  at  the  time  of  its  conversion;  for  if  the  insured's  expectancy 
has  been  reduced,  in  proportion  to  such  reduction  the  value  of  his 
policy  has  increased.     It  was  said  in  Bell's  Cast\  L.  R.  (9  Eq.)  717: 

"  As  to  the  lives,  it  will  be  assumed,  until  the  contrary  is  shown, 
that  they  are  all  in  a  normal  state;  that  no  other  change  has  taken 
place  than  that  which  arises  from  the  advance  of  age.  If  in  addition 
to  that,  either  from  accident  or  illness,  a  higher  rate  of  assurance 
is  required,  that  must  be  added  to  the  proof.  That  is  one  of  the 
things  w^hich  the  office  has  assured  against,  and  the  chance  of  life 
has  diminished." 

See  also  Speer  v.   Life  Ins.  Co..,  ^^d  Hun,  322. 

We  think  the  rule  is  fair  and  equitable  as  between  the  plaintiff  and 
defendants,  and  therefore  recommend  that  it  be  adopted. 

By  thk  Court:  It  is  so  ordered. 

All  the  j  vstices  concurring. 


PART  VII. 
Waiver  and  Estoppel,  i 


I.   In  General. 
Beck,  J.,  in  VIELE  v.  GERMANIA  INSURANCE  CO. 

26  Ia.  I,  48.  —  1868.'^ 

III.  The  solution  of  one  question  will  dispose  of  many  points 
made  by  the  defendant  relating  to  the  admission  and  exclusion  of 
evidence,  and  the  giving  and  refusing  of  instructions  to  the  jury. 
The  question  is  this:  Can  the  breach  of  the  conditions  of  the  policy 
against  the  increase  of  the  risk,  without  the  written  consent  of  the 
insurers,  whereby  the  instrument  became  forfeited,  be  waived  by 
parol  or  by  the  acts  of  the  defendant? 

The  plaintiff  admitted  the  increase  of  the  risk  by  the  use  of  a  part 
of  the  building  insured  for  the  manufacture  of  rustic  window  shades, 
but  sought  to  avoid  the  forfeiture,  which  otherwise  would  have 
resulted,  by  evidence  tending  to  show  the  consent  of  the  agent  of 
defendant  to  such  use,  his  acts  and  declarations  recognizing  the  con- 
tract of  insurance,  after  the  increase  of  the  risk,  and  his  admission 
that  the  building  continued  to  be  covered  by  the  policy.  This  evi- 
dence was  given  to  the  jury  against  the  objection  of  the  defendant, 
and  the  court  hcld^  in  the  instructions  to  the  jury,  that  such  facts, 
if  proved,  would  operate  as  a  waiver  of  the  forfeiture  and  entitle 
plaintiff  to  recover.  The  following  are  among  the  conditions  of 
the  policy:  "  If  the  above  mentioned  premises  shall  be  used  or 
occupied  so  as  to  increase  the  risk,  or  become  vacant  and  unoccu- 
pied, or  the  risk  be  increased  by  the  erection  of  adjacent  buildings, 
or  by  any  other  means  whatever,  within  the  control  of  the  assured, 
without  the  assent  of  the  companies  indorsed  hereon;     *     *     *     or 


'  See  also  cases  on  Insurance  Ag^ents,  post^  p.  468. 

'  The  part  of  the  opinion  treating  of  the  authority  of  agents  to  waive  pro- 
visions of  the  contract  is   printed  herein  at  p.  472. 

LAW  OF  INSURANCF.  —  27  [417] 


41  y  WAIVER   AND    ESTOPPEL. 

if  the  assured  shall  keep  upon  the  said  premises  gunpowder,  or 
phosphorus,  or  petroleum,  or  rock  or  earth  oils,  or  benzole,  benzine 
or  naphtha,  or  any  explosive  substance,  or  shall  keep  or  use  upon 
the  said  premises  camphene,  spirits,  gas  or  chemical  oils,  without 
written  permission  on  this  policy,  then,  and  in  every  such  case, 
this  policy  shall  be  void." 

The  (juestion  above  stated  is  fairly  presented  by  the  record,  and 
is  of  very  great  importance,  not  only  in  its  relatiou  to  this  case,  but 
to  the  business  of  insurance  generally.  We  have  endeavored  to 
give  it  the  careful  and  patient  consideration,  aided  by  the  able 
argument  of  the  counsel  for  the  respective  parties,  »vhich  its 
importance  demands. 

The  policy  which  is  the  foundation  of  this  action,  though  a  uni- 
lateral contract  in  form,  contains  covenants  of  the  assured  as  well 
as  of  the  underwriters,  and  mutual  agreements  of  the  parties.  Some 
of  these  covenants  on  the  part  of  the  assured  are  in  the  nature  of 
warranties  and  conditions  precedent;  others  are  in  the  nature  of 
obligations  imposed  by  the  conditions  limiting  or  measuring  the  lia- 
bility of  the  underwriters.  The  covenants  of  the  insurers  are  mostly, 
if  not  all,  dependent  upon  the  obligations  or  covenants  of  the 
insured,  expressed  or  implied  in  the  policy.  The  policy,  though 
subscribed  only  by  the  underwriters,  is  evidence  of  the  contract 
entered  into  by  both  parties,  and  binds  both.  2  Parsons'  Maritime 
Law,  27;  Parsons'  Mercantile  Law,  404.  Contracts  of  this  char- 
acter, binding  the  obligor  upon  conditions  to  be  performed  by  the 
obligee,  but  subscribed  only  by  the  obligor,  are  not  uncommon. 
Those  for  the  sale  of  real  estate  are  often  in  this  form.  The 
language  used  to  express  the  idea  that  the  obligor  is  not  bound  to 
perform  his  covenant,  until  the  conditions  imposed  upon  the  other 
party  are  performed,  or,  in  other  words,  that  the  obligor's  covenants 
are  dependent,  is  usually  a  recital  of  the  conditions  which  are  to  be 
performed  by  the  obligee,  following  with  the  declaration  that  if  they 
are  not  performed,  the  instrument  shall  become  void  or  forfeited. 
The  policy  under  consideration  is  in  this  form.  It  declares  that  if 
the  risk  is  increased  by  means  within  the  control  of  the  assured, 
without  the  assent  of  the  underwriters,  it  "  shall  be  void."  By  the 
conditions  expressed  the  assured  is  prohibited  from  increasing  the 
risk,  and  he  obligates  himself  that  it  shall  not  be  increased  in 
the  manner  prohibited.  This  is  his  undertaking,  and,  as  we  have 
seen,  he  is  bound  thereby  as  though  he  had  subscribed  the  policy. 
This  is  obvious;  but  a  word  or  two  more  may  express  the  idea  more 
clearly.  The  underwriters  obligate  themselves  to  pay  a  certain  sum 
in  case  of  the  loss  of  the  building  by  fire,  with  the  condition,  how- 


WAIVER   AND    ESTOPPEL.  419 

ever,  that  the  risk  shall  not  be  increased  in  the  manner  prohibited. 
To  this  condition  the  assured  assents  by  the  acceptance  of  the  con- 
tract, and  he  thus  obligates  himself  and  becomes  bound  by  the  policy, 
that  the  risk  shall  not  be  increased.  If  he  permits  it  to  be  increased 
his  covenants  are  broken.  The  condition  which  he  is  bound  to  per- 
form is  precedent  to  the  underwriters'  covenant.  The  underwriters 
are,  therefore,  not  liable  on  the  policy,  which  ceases  to  bind  them, 
and  to  that  extent  the  policy  becomes  void. 

Unsound  conclusions  in  the  argument  of  defendant's  counsel 
result  from  an  improper  understanding  of  the  expression  "  shall  be 
void,"  used  in  the  condition  above  quoted  from  the  policy.  It  is 
insisted  that  the  instrument,  by  force  of  these  words,  upon  the 
increase  of  the  risk,  became  absolutely  null  and  void.  The  phrases 
and  words  used  to  convey  the  idea  are,  "  ipso  facto  void;"  "  dead;" 
"  extinct ;"  "  defunct;"  "  of  no  effect,"  etc.,  etc. ;  meaning  thereby 
that  the  instrument  has  no  force  or  effect  in  the  sense  of  these 
terms  when  applied  to  instruments  void  in  law,  as  the  deeds  of 
parties  having  no  legal  capacity  to  contract,  or  contracts  against 
public  policy,  etc.  But  the  term  "  void,"  as  used  in  the  policy, 
has  no  such  meaning.  It  simply  means  that  the  underwriters,  upon 
the  violation  of  his  covenants  by  the  assured,  shall  cease  to  be 
bound  by  their  covenants  in  the  policy;  and  this  is  in  accordance 
with  the  true  definition  of  the  word  and  its  common  use  in  like  con- 
nections. The  policy  does  not  cease  to  have  a  legal  existence,  it  is 
the  only  competent  evidence  of  the  contract  it  embodies,  and  in 
truth  is  not  void  except  so  far  that  the  underwriters  are  no  longer 
bound  thereby.  Neither  will  they  be  discharged  therefrom  unless 
they  plead  the  fact  that  the  insured  failed  to  perform  his  covenants 
contained  in  the  policy.  Their  silence  would  waive  the  default  of 
the  opposite  party. 

The  position  of  defendant's  counsel,  which  is  supported  by  several 
authorities,  is  to  the  effect  that  upon  a  breach  of  the  conditions  of 
the  policy  by  the  assured,  which  would  defeat  recovery  thereon,  it 
becomes  absolutely  void  —  as  it  were,  dead  —  and  that  nothing  short 
of  a  new  creation  could  impart  vitality  to  it.  This  doctrine  is 
certainly  unsound  when  applied  to  other  contracts;  for,  on  the  con- 
trary, after  default  in  the  conditions  by  one  party,  the  other  ma) 
waive  the  forfeiture  and  treat  the  instrument  as  of  binding  force 
upon  himself.  No  reasons  can  be  given  to  except  policies  of  insur- 
ance from  the  operation  of  this  rule.  The  party  in  default  cannot 
defeat  the  contract;  the  party  for  whose  benefit  the  conditions  are 
introduced  may  waive  the  forfeiture.  It  follows,  therefore,  that  the 
instrument  is  forfeited  at  the  option  of  the  innocent  party;  and  if 


420  WAIVER    AND    ESTOTPEL. 

he  waives  the  forfeiture,  the  contract  stands  as  if  no  breach  .  i 
occurred.  In  WilUatns  v.  Bank  of  the  United  States,  2  Peters,  102, 
the  doctrine  is  announced  in  these  words:  "  If  a  party  to  a  contract, 
who  is  entitled  to  the  benefit  of  a  condition,  upon  the  performance 
of  which  his  responsibility  is  to  arise,  dispenses  with,  or  by  any  act 
of  his  own  prevents,  the  performance,  the  opposite  party  is  excused 
from  proving  a  strict  compliance  with  the  condition." 

We  conclude,  therefore,  that  the  forfeiture  of  the  policy  on 
account  of  the  breaches  of  the  conditions  thereof,  could  have  been 
waived  by  the  defendant,  and  if  waived,  the  policy  continued  of  the 
same  binding  force  which  it  originally  possessed.  This  view  is 
sustained  by  the  following  authorities:  Keenan  v.  Mo.  State  Mut. 
Ins.  Co.,  12  Iowa,  126;  David  V.  The  Hartford  Ins.  Co.,  13  Iowa,  69; 
Carpenter  v.  The  Prov.  Wash.  Ins.  Co.,  16  Pet.  509;  Coursen  v.  Penn. 
Ins.  Co.,  46  Penn.  St.  323;  Atlantic  Ins.  Co.  v.  Goodale,  35  N.  H.  328; 
Frost  v.  Saratoga  Ins.  Co.,  5  Den.  154;  Clark  v.  Joties,  i  Id.  516; 
Cartwright  v.  Gardner,  5  Cush.  281;  North  Berwick  Co.  v.  Ins.  Co., 
52  Maine,  336;  Warner  v.  Peoria  Ins.  Co.,  14  Wis.  323;  Smith  v. 
Gugerty,  4  Barb.  S.  C.  614;  N.  E.  F.  ^  M.  Ins.  Co.  v.  Schettler,  38 
111.  166;  Viall  v.  Ins.  Co.,  19  Barb.  440;  Ins.  Co.  v.  Stockboiver,  26 
Penn  St.  199;  Buckbee  v.  Life  Ins.  Co.,  18  Barb.  541;  Beal  v.  Park 
Ins.  Co.,  16  Wis.  241 ;  Wing  v.  Harvey,  27  Eng.  Law  &  F.q.  140;  Peoria 
F.  6^  M.  Ins.  Co.  v.  Hall,  12  Mich.  202. 

IV.  We  are  next  led  to  inquire  as  to  the  manner  of  the  waiver  of 
the  forfeiture,  whether  it  must  be  in  writing  or  may  be  by  parol, 
and  what  acts  of  the  defendant  will  amount  to  a  waiver.  Parol  evi- 
dence is  not  admissible  to  contradict  or  alter  a  written  instrument, 
but  this  rule  does  not  exclude  such  evidence  when  adduced  to  prove 
that  a  written  contract  is  discharged,  or  that  the  damages  for  non- 
performance were  waived,  or  that  performance  of  a  part  of  the  con- 
tract was  dispensed  with,  i  Greenleaf's  Ev.,  §§  302-304;  2  Phil. 
Ev.  (Cowea  &  Hill's  and  Edwards'  Notes)  692  and  note  505;  2 
Starkie's  Ev.  574;  Fleming  v.  Gilbert,  3  Johns.  528;  Merrill  v.  Ithaca 
dr"  Oicego  R.  R.  Co.,  16  Wend.  586.  These  exceptions  to  the  rule, 
or  rather  the  rule  admitting  parol  evidence  for  these  purposes,  may 
not  apply  to  specialties;  but  a  contract  of  insurance  need  not  be  by 
specialty,  or  even  in  writing.  It  seems  to  be  the  better  opinion  that 
it  may  be  oral  only.  Parsons'  Mercantile  Law,  403  and  notes;  2  Par- 
sons' Maritime  Law,  19  and  notes;  City  of  Davenport  v.  Peoria  Ins. 
Co.,  17  Iowa,  276;  Commercial  Ins.  Co.  v.  Union  Ins.  Co.,  19  How. 
321;  Baptist  Church  v.  Brooklyn  Ins.  Co.,  19  N.  Y.  305.  We  need 
not,  then,  inquire  whether  a  policy  executed  by  an  incorporation 
and  attested  by  its  corporate  seal  is  a  specialty,  for  the  policy  sued 


WAIVER   AND    ESTOPPEL.  421 

on  is  not  sealed  by  the  companies,  and  is  therefore  a  simple  con- 
tract and  not  a  specialty.  The  rule  therefore  will  not,  in  this  suit, 
exclude  parol  evidence  for  the  purposes  above  mentioned.  The 
cases  which  we  will  hereafter  cite,  in  considering  what  acts  may 
amount  to  a  waiver  of  conditions  or  forfeiture  on  account  of  breaches 
of  conditions,  support  this  doctrine  and  will  illustrate  its  application, 
It  is  argued  that  the  condition  in  the  policy,  to  the  effect  that  an 
increase  in  the  risk  avoids  the  contract  on  the  part  of  the  under- 
writers, unless  consent  thereto  be  had  in  writing,  implies  that  such  con- 
sent can  be  given  in  no  other  way.  It  will  be  at  once  remarked  that 
this  restriction  is  itself  a  condition,  and  is  just  as  capable  of  being 
waived  or  dispensed  with  as  any  other  condition  of  the  instrument 
and  in  the  same  way.  There  is  nothing  in  the  terms  of  this  con- 
dition prohibiting  its  waiver.  But  the  conditions  of  the  policy 
became  broken  by  an  increase  of  the  risk,  without  written  consent, 
and  there  at  once  happened  a  forfeiture  whereby  defendant  was 
discharged  from  the  contract.  Now,  as  a  matter  of  fact,  the  waiver 
was  not  of  the  written  consent,  but  of  the  forfeiture. 

V.  What  will  amount  to  or  have  the  effect  of  a  waiver  of  a  forfeit- 
ure of  the  policy,  or  a  dispensation  of  the  performance  of  its  con- 
ditions? The  party  for  tvhose  benefit  a  condition  is  introduced  in  a 
contract  may  determine  whether  it  shall  or  shall  not  be  enforced, 
and,  as  we  have  seen,  may  waive  or  dispense  with  its  performance. 
It  seems  reasonable  that  the  same  character  of  evidence  will  estab- 
lish a  waiver  or  dispensation  of  conditions  that  is  sufficient  to  prove 
the  existence  of  a  contract.  An  express  agreement  to  that  effect 
will  of  course  be  sufficient.  Circumstances  proving  that  the  party 
treated  the  contract  as  subsisting  and  not  forfeited,  a  course  of 
dealing  consistent  only  with  that  hypothesis,  and  acts  and  declara- 
tions whereby  the  other  party  was  induced  to  believe  that  the  con- 
dition was  dispensed  with  or  forfeiture  waived,  will  be  sufficient  to 
preclude  the  setting  up  of  the  breaches  of  the  condition  as  a  defense 
to  the  contract  of  the  party  bound  thereby.  Thus  the  receipt  of 
premium  upon  a  policy  after  forfeiture  is  a  waiver  thereof.  N'orth 
Berwick  Co.  v.  Insurance  Co.^  52  Maine,  336;  New  York  Insurance 
Co.  V.  National  Prot.  Ins.  Co.,  20  Barb.  468;  liddle  v.  Market  Fire 
Inmrance  Co..,  29  N.  Y.  184;  Ames  v.  Neiv  York  Union  Ins.  Co.,  26 
Id.  263;  Bochen  v.  Williamsburgh  Ins.  Co.,  35  Id.  131;  Goit  v. 
National  Prot.  Ins.  Co.,  25  Barb.  189;  Viallv.  Genesee  Mutual  Ins. 
Co.,  19  Id.  446;  Frost  V.  Saratoga  Mutual  Ins.  Co.,  5  Den.  154; 
Lycotning  Ins.  Co.  v.  Stockbower,  26  Penn.  St.  199;  Wing  v.  Harvey, 
27  Eng.  Law  &  Eq.  140.  So  the  taking  of  an  additional  risk  on  the 
same  policy  will  waive  a  forfeiture  existing  at  the  time  for  breach 


422  WAIVER    AND    ESTOPPEL. 

of  condition.  Rathbom  v.  City  Ins.  Co.,  31  Conn.  193.  The  knowl- 
edge of  the  officers  of  an  insurance  company  taking  a  risk  upon  the 
life  of  a  party,  that  he  intended  to  go  south  of  a  certain  degree  of 
latitude,  is  a  dispensation  of  a  condition  that  the  insured  should  not 
go  beyond  that  latitude.  Bevin  v.  Connecticut  Life  Ins.  Co.,  23 
Conn.  244.  The  renewal  of  a  life  policy  which  had  expired  by  non- 
payment of  premium,  in  favor  of  one  who  at  the  time  was  sick,  and 
so  known  to  the  officer  renewing  the  policy,  is  a  waiver  of  conditions 
against  ill-health  of  the  assured,  which  otherwise  would  have  avoided 
the  policy.  Btickbeew  United  States  Ins.  6^  Trust  Co.,  18  Barb.  541. 
The  following  cases  which  illustrate  the  doctrine  under  discussion 
we  have  not  space  to  classify  or  further  notice  in  this  connection: 
Peoria  Ins.  Co.  v.  Hall,  12  Mich.  202;  Sheldon  v.  Atlantic  Ins.  Co.,  26 
N.  Y.  460;  Warner  v.  Peoria  Ins.  Co.,  14  Wis  318;  N.  E.  P.  &•  M. 
Ins.  Co.\.  Schettler,  38  111.  166;  Coursen  v.  Penn.  Ins.  Co.,  46  Penn. 
St.  323;  Ruse  V.  Mutual  Ben.  Life  Ins.  Co.,  26  Barb    556. 

It  will  be  observed  that  the  waiver  of  the  condition  or  forfeiture, 
under  these  authorities,  is  not  required  to  be  supported  by  a  con- 
sideration. In  the  cases  where  it  is  held  that  the  payment  of  pre- 
mium upon  a  policy  forfeited  for  breaches  of  condition  is  a  waiver 
of  forfeiture,  the  payment  was  not  made  in  consideration  of  the 
waiver,  but  for  the  renewal  or  continuance  of  the  insurance.  The 
waiver  or  dispensation  is  not  in  the  nature  of  a  contract  which 
requires  the  support  of  a  consideration,  but  rather  of  an  estoppel, 
whereby  the  underwriter  is  precluded  from  denying  the  validity  of 
the  contract,  on  account  of  acts  or  admissions  either  recognizing  it 
as  of  binding  force  after  the  forfeiture  or  holding  out  to  the  assured 
that  the  performance  of  the  condition  is  dispensed  with.  It  is  not 
an  accurate  use  of  terms  to  say  that  the  condition  of  a  contract 
must  be  supported  by  a  consideration.  The  contract  itself  must  be, 
but  the  condition  is  a  mere  incident  thereto,  and  its  sufficiency, 
validity  or  force  is  in  no  way  affected  or  dependent  upon  the  con- 
sideration. It  is  true  the  condition  may  influence  the  parties  in 
fixing  the  amount  of  the  consideration,  but  the  law  will  not,  in  the 
absence  of  fraud,  inquire  into  its  sufficiency,  nor  hold  a  contract 
invalid  because  a  full  or  just  value  has  not  been  received  by  the 
obligor.  The  case  of  a  policy  of  insurance  illustrates  the  point. 
The  underwriter  is  bound  thereby  to  pay  the  assured  the  amount  of 
any  loss  by  fire  which  may  happen  to  his  property  within  a  certain 
time.  The  consideration  of  this  contract  is  the  premium  received 
by  the  underwriter.  The  assured  is  bound  not  to  permit  the  risk 
to  be  increased;  this  obligation  is  the  condition  of  the  policy,  and 
with  it  we  can  associate  no  idea  of  considerition.     It  mav  enter  into 


WAIVER    AND    ESTOPPEL.  423 

the  contemplation  of  the  under\vriter  when  fixing  the  value  of  the 
risk,  which  may  be  worth  a  greater  premium  without  the  condition 
in  the  policy,  but  the  adequacy  of  the  consideration,  as  we  have 
remarked,  is  not  a  matter  of  inquiry,  and  the  consideration  itself 
no  element  of  the  condition.  We  conclude,  therefore,  that,  as  the 
condition  is  not  dependent  upon  nor  supported  by  the  considera- 
tion, it  may  be  waived  or  dispensed  with  even  by  an  agreement  with- 
out consideration,     *     *     * 


2.   Before  the  Policy  Is  Issued. 

INSURANCE  CO.  v.  WILKINSON. 

13  Wall.  222.  —  1871. 

The  Union  Mutual  Insurance  Company,  of  Maine,  insured  the  life 
of  Mrs.  Malinda  Wilkinson  in  favor  of  her  husband.  Both  husband 
and  wife,  prior  to  the  rebellion,  had  been  slaves,  and  the  husband 
came  to  Keokuk,  Iowa,  from  Missouri.  The  company  did  business 
in  Keokuk  (where  the  application  was  made  and  the  policy  deliv- 
ered), through  an  agent,  one  Ball,  to  whom  it  furnished  blank  appli- 
cations. The  mode  of  doing  business  appeared  to  have  been  that 
the  agent  propounded  certain  printed  questions,  such  as  are  usual 
on  applications  for  insurance  on  lives,  contained  in  a  form  of  appli- 
cation, and  took  down  the  answers;  and  when  the  application  was 
signed  by  the  applicant,  the  friend  and  physician  forwarded  it  to 
the  company,  and  if  accepted,  the  policy  was  returned  to  this  agent, 
who  delivered  it  and  collected  and  transmitted  the  premiums.  On 
this  form  of  application  were  the  usual  questions  to  be  answered  by 
the  person  proposing  to  effect  the  assurance;  and  by  the  terms  of 
the  policy  it  became  void  if  any  of  the  representations  made  proved 
to  be  untrue.  Among  the  questions  was  this  one:  Question. 
Mother's  age,  at  her  death?  Answer.  40.  Question.  Cause  of  her 
death?  Answer.  Fever.  Mrs.  Wilkinson  having  died,  and  the 
company  refusing  to  pay  the  sum  insured,  Wilkinson,  the  husband, 
brought  suit  in  the  court  below  to  recover  it.  The  defense  was 
that  the  answers  as  above  given  to  the  questions  put  were  false; 
that  the  mother  had  not  died  at  the  age  of  forty,  but  at  the  earlier 
age  of  twenty-three,  and  had  not  died  of  fever  but  of  consumption. 
Evidence  having  been  given  by  the  defendant  tending  to  show  that 
she  died  at  a  much  younger  age  than  forty  years,  and  of  consump- 
tion, the  plaintiff,  in  avoidance  of  this,  was  permitted  (under  the 
plaintiff's  objection  and  exception)   to  prove  that  the  agent  of  the 


424  WAIVER   AND    ESTOPPEL. 

insurance  company,  who  took  down  the  answers  of  the  applicant  and 
his  wife  to  all  the  interrogatories,  was  told  by  both  of  them  that 
they  knew  nothing  about  the  cause  of  the  mother's  death,  or  of  her 
age  at  the  time;  that  the  wife  was  too  young  to  know  or  remember 
anything  about  it,  and  that  the  husband  had  never  known  her;  and 
to  prove  that,  there  was  present  at  the  time  the  agent  was  taking 
the  application,  an  old  woman,  who  said  that  she  had  knowledge  on 
that  subject,  and  that  the  agent  questioned  her  for  himself,  and 
from  what  she  told  him  he  filled  in  the  answer  which  was  now 
alleged  to  be  untrue,  without  its  truth  being  affirmed  or  assented  to 
by  the  plaintiff  or  the  wife.  This  the  jury  found  in  their  special 
verdict,  as  they  had  the  other  facts,  and  found  that  the  mother  died 
at  the  age  of  twenty-three;  did  not  die  of  consumption;  and  that 
the  applicant  did  not  know  when  the  application  was  signed  how 
the  answer  to  the  question  about  the  mother's  age  and  the  cause  of 
her  death  had  been  filled  in. 

In  charging  the  jury,  the  court  said,  that  if  the  applicant  did  not 
know  at  what  age  her  mother  died,  and  did  not  state  it,  and  declined 
to  state  it,  and  that  her  age  was  inserted  by  the  agent  upon  state- 
ments made  to  him  by  others  in  answer  to  inquiries  he  made  of  them, 
and  upon  the  strength  of  his  own  judgment,  based  upon  the  data 
thus  obtained,  it  was  no  defense  to  the  action  to  show  that  the 
agent  was  mistaken,  and  that  the  mother  died  at  the  age  of  twenty- 
three  years. 

Verdict  and  judgment  having  gone  for  the  plaintiff,  the  insurance 
company  brought  the  case  here  on  error. 

Mr.  Justice  Miller. —  *  *  *  -pj^g  defendant  excepted  to  the 
introduction  of  the  oral  testimony  regarding  the  action  of  the  agent, 
and  to  the  instructions  of  the  court  on  that  subject;  and  assigns  the 
ruling  of  the  court  as  error  on  the  ground  that  it  permitted  the 
written  contract  to  be  contradicted  and  varied  by  parol  testimony. 

The  great  value  of  the  rule  of  evidence  here  invoked  cannot  be 
easily  overestimated.  As  a  means  of  protecting  those  who  are 
honest,  accurate,  and  prudent  in  making  their  contracts,  against 
fraud  and  false  swearing,  against  carelessness  and  inaccuracy,  by 
furnishing  evidence  of  what  was  intended  by  the  parties,  which  can 
always  be  produced  without  fear  of  change  or  liability  to  miscon- 
struction, the  rule  merits  the  eulogies  it  has  received.  But  experi- 
ence has  shown  that  in  reference  to  these  very  matters  the  rule  is 
not  perfect.  The  written  instrument  does  not  always  represent  the 
intention  of  both  parties,  and  sometimes  it  fails  to  do  so  as  to 
either;  and  where  this  has  been  the  result  of  accident,  or  mistake, 
or  fraud,  the  principle  has  been  long  recognized  that  under  proper 


WAIVER   AND    ESTOPPEL.  425 

circumstan.ces,  and  in  an  appropriate  proceeding,  the  instrument 
may  be  set  aside  or  reformed,  as  best  suits  the  purposes  of  justic-:, 
A  rule  of  evidence  adopted  by  the  courts  as  a  protection  against 
fraud  and  false  swearing,  would,  as  was  said  in  regard  to  the  analo- 
gous rule  known  as  the  statute  of  frauds,  become  the  instrument  of 
the  very  fraud  it  was  intended  to  prevent,  if  there  did  not  exist 
some  authority  to  correct  the  universality  of  its  application.  It  is 
upon  this  principle  that  courts  of  equity  proceed  in  giving  the  relief 
just  indicated;  and  though  the  courts,  in  a  common-law  action, 
may  be  more  circumscribed  in  the  freedom  with  which  they  inquire 
into  the  origin  of  written  agreements,  such  an  inquiry  is  not  always 
forbidden  by  the  mere  fact  that  the  party's  name  has  been  signed  to 
the  writing  offered  in  evidence  against  him. 

In  the  case  before  us  a  paper  is  offered  in  evidence  against  the 
plaintiff  containmg  a  representation  concerning  a  matter  material 
to  the  contract  on  which  the  suit  is  brought,  and  it  is  not  denied 
that  he  signed  the  instrument,  and  that  the  representation  is  untrue. 
But  the  parol  testimony  makes  it  clear  beyond  a  question,  that  this 
party  did  not  intend  to  make  that  representation  when  he  signed  the 
paper,  and  did  not  know  he  was  doing  so,  and,  in  fact,  had  refused 
to  make  any  statement  on  that  subject.  If  the  writing  containing 
this  representation  had  been  prepared  and  signed  by  the  plaintiff  in 
his  application  for  a  policy  of  insurance  on  the  life  of  his  wife,  and 
if  the  representation  complained  of  had  been  inserted  by  himself,  or 
by  some  one  who  was  his  agent  alone  in  the  matter,  and  forwarded 
to  the  principal  office  of  the  defendant  corporation,  and  acted  upon 
as  true,  by  the  officers  of  the  company,  it  is  easy  to  see  that  justice 
would  authorize  them  to  hold  him  to  the  truth  of  the  statement,  and 
that  as  they  had  no  part  in  the  mistake  which  he  made,  or  in  the 
making  of  the  instrument  which  did  not  truly  represent  what  he 
intended,  he  should  not,  after  the  event,  be  permitted  to  show  his 
own  mistake  or  carelessness  to  the  prejudice  of  the  corporation. 

If,  however,  we  suppose  the  party  making  the  insurance  to  have 
been  an  individual,  and  to  have  been  present  when  the  application 
was  signed,  and  soliciting  the  assured  to  make  the  contract  of  insur- 
ance, and  that  the  insurer  himself  wrote  out  all  these  representa- 
tions, and  was  told  by  the  plaintiff  and^  his  wife  that  they  knew 
nothing  at  all  of  this  particular  subject  of  inquiry,  and  that  they 
refused  to  make  any  statement  about  it,  and  yet  knowing  all  this, 
wrote  the  representation  to  suit  himself,  it  is  equally  clear  that  for 
the  insurer  to  insist  that  the  policy  is  void  because  it  contains  this 
statement,  would  be  an  act  of  bad  faith  and  of  the  grossest  injustice 
and  dishonesty.     And  the  reason  for  this  is  that  the  representation 


426  WAIVER   AND    ESTOPPEL. 

was  not  the  statement  of  the  plaintiff,  and  that  the  defendant  knew 
it  was  not  when  he  made  the  contract;  and  that  it  was  made  by  the 
defendant,  who  procured  the  plaintiff's  signature  thereto. 

It  is  in  precisely  such  cases  as  this  that  courts  of  law  in  modern 
times  have  introduced  the  doctrine  of  equitable  estoppels,  or,  as  it 
is  sometimes  called,  estoppels  /'//  pais.  The  principle  is  that  where 
one  party  has  by  his  representations  or  his  conduct  induced  the 
other  party  to  a  transaction  to  give  him  an  advantage  which  it 
would  be  against  equity  and  good  conscience  for  him  to  assert,  he 
would  not  in  a  court  of  justice  be  permitted  to  avail  himself  of  that 
advantage.  And  although  the  cases  to  which  this  principle  is  to  be 
applied  are  not  as  well  defined  as  could  be  wished,  the  general  doc- 
trine is  well  understood  and  is  applied  by  courts  of  law  as  well  as 
equity  where  the  technical  advantage  thus  obtained  is  set  up  and 
relied  on  to  defeat  the  ends  of  justice  or  establish  a  dishonest  claim. 
It  has  been  applied  to  the  precise  class  of  cases  of  the  one  before 
us  in  numerous  well-considered  judgments  by  the  courts  of  this, 
country.  Plumb  v.  Cattaraugus  Ins.  Co.,  i8  N.  Y.  392;  Rowley  v. 
Empire  Ins.  Co.,  36  Id.  550;  IVoodbury  Saz'ings  Bank  v.  Charter  Oak 
Im.  Co.,  31  Conn.  526;  Combs  v.  The  Hannibal  Savings  or'  Ins. Co.,  43 
Missouri,  14S.  Indeed,  the  doctrine  is  so  well  understood  and  so 
often  enforced  that,  if  in  the  transaction  we  are  now  considering, 
Ball,  the  insurance  agent,  who  made  out  the  application,  had  been 
in  fact  the  underwriter  of  the  policy,  no  one  would  doubt  its  appli- 
cability to  the  present  case.  Yet  the  proposition  admits  of  as  little 
doubt  that  if  Ball  was  the  agent  of  the  insurance  company,  and  not 
of  the  plaintiff,  in  what  he  did  in  filling  up  the  application,  the 
company  must  be  held  to  stand  just  as  he  would  if  he  were  the 
principal. 

Although  the  very  well-considered  brief  of  counsel  for  plaintiff  in 
error  takes  no  issue  on  this  point,  it  is  obvious  that  the  soundness 
of  the  court's  instructions  must  be  tested  mainly  by  the  answer  to 
be  given  to  the  question,  "  Whose  agent  was  Ball  in  filling  up  the 
application?  " 

This  question  has  been  decided  differently  by  courts  of  the  high- 
est respectability  in  cases  precisely  analogous  to  the  present.  It  is 
not  to  be  denied  that  the  application,  logically  considered,  is  the 
work  of  the  assured,  and  if  left  to  himself  or  to  such  assistance  as 
he  might  select,  the  person  so  selected  would  be  his  agent,  and  he 
alone  would  be  responsible.  On  the  other  hand,  it  is  well  known, 
so  well  that  no  court  would  be  justified  in  shutting  its  eyes  to  it, 
that  insurance  companies  organized  under  the  laws  of  one  State, 
and.  having  in  that  State  their  principal  business  ofifice,  send  these 


WAIVER   AND    ESTOPPEL.  427 

agents  all  over  the  land,  with  directions  to  solicit  and  procure  appli- 
cations for  policies,  furnishing  them  with  printed  arguments  in  favor 
of  the  value  and  necessity  of  life  insurance,  and  of  the  special 
advantages  of  the  corporation  which  the  agent  represents.  They 
pay  these  agents  large  commissions  on  the  premiums  thus  obtained, 
and  the  policies  are  delivered  at  their  hands  to  the  assured.  The 
agents  are  stimulated  by  letters  and  instructions  to  activity  in  pro- 
curing contracts,  and  the  party  who  is  in  this  manner  induced  fo 
take  out  a  policy,  rarely  sees  or  knows  anything  about  the  company 
or  its  officers  by  whom  it  is  issued,  but  looks  to  and  relies  upon  the 
agent  who  has  persuaded  him  to  effect  the  insurance  as  the  full  and 
complete  representative  of  the  company,  in  all  that  is  said  or  done 
in  making  the  contract.  Has  he  not  a  right  to  so  regard  him?  It 
is  quite  true  that  the  reports  of  judicial  decisions  are  filled  with  the 
efforts  of  these  companies,  by  their  counsel,  to  establish  the  doc- 
trine that  they  can  do  all  this  and  yet  limit  their  responsibility  for 
the  acts  of  these  agents  to  the  simple  receipt  of  the  premium  and 
delivery  of  the  policy,  the  argument  being  th  it,  as  to  all  other  acts 
of  the  agent,  he  is  the  agent  of  the  assured.  This  proposition  is  not 
without  support  in  some  of  the  earlier  decisions  0.1  the  subject;  and, 
at  a  time  when  insurance  companies  waited  for  parties  to  c.^me  to 
them  to  seek  assurance,  or  to  forward  applications  on  their  own 
motion,  the  doctrine  had  a  reasonable  foundation  to  rest  upon.  But 
to  apply  such  a  doctrine,  in  its  full  force  to  the  system  of  selling 
policies  through  agents,  which  we  have  described,  would  be  a  snare 
and  a  delusion,  leading,  as  it  has  done  in  numerous  instances,  to  the 
grossest  frauds,  of  which  the  insurance  corporations  receive  the 
benefits,  and  the  parties  supposing  themselves  insured  are  the  vic- 
tims. The  tendency  of  the  modern  decisions  in  this  country  is 
steadily  in  the  opposite  direction.  The  powers  of  the  agent  are, 
prima  facie,  co-extensive  with  the  business  intrusted  to  his  care,  and 
will  not  be  narrowed  by  limitations  not  communicated  to  the  person 
with  whom  he  deals.  Bebee  v.  Hartford  Ins.  Co.,  25  Conn.  51;  The 
Lycoming  Ins.  Co.  v.  Schollenberger,  8  ^Vright,  259;  Beal  v.  The  Park 
Ins.  Co.,  16  Wis.  241;  Davenport  v.  Peoria  Ins.  Co.,  17  Iowa,  276. 
An  insurance  company,  establishing  a  local  agency,  must  be  held 
responsible  to  the  parties  with  whom  they  transact  business  for  the 
acts  and  declarations  of  the  agent,  within  the  scope  of  his  employ- 
ment, as  if  they  proceeded  from  the  principal.  Savings  Bank  v. 
Charter  Oak  Ins.  Co.,  31  Conn.  517;  Horwitz  v.  Equitable  Ins.  Co.,  40 
Mo.  557;  Ayres  v.  Hartford  Ins.  Co.,  17  Iowa,  176;  The  Howard 
Ins.  Co.w.  Bruner,  11  Harris,  50. 

In  the  fifth  edition  of  American  Leading  Cases,  published  A.  D. 


428  WAIVER   AND   ESTOl'PKL. 

1872,  vol.  2,  p.  917,  after  a  full  consideration  of  the  authorities,  it 
is  said:  "  By  the  interested  or  officious  zeal  of  the  agents  eiiijjloyed 
by  the  insurance  companies  in  the  wish  to  outbid  each  other  and 
procure  customers,  they  not  unfrequently  mislead  the  insured,  by  a 
false  or  erroneous  statement,  of  what  the  application  should  con- 
tain, or,  taking  the  preparation  of  it  into  their  own  hands,  procure 
his  signature  by  an  assurance  that  it  is  properly  drawn,  and  will 
meet  the  requirements  of  the  policy.  The  better  opinion  seems  to 
be  that,  when  this  course  is  pursued,  the  description  of  the  risic 
should,  though  nominally  proceeding  from  the  insured,  be  regarded 
as  the  act  of  the  ins  jrers.'  Rowley  v.  Empire  Ins.  Co.,  36  N.  Y.  550. 
The  modern  decisions  fully  sustain  this  proposition,  and  they 
seem  to  us  founded  in  reason  and  justice,  and  meet  our  entire 
approval.  This  principle  does  not  admit  oral  testimony  to  vary  or 
contradict  that  which  is  in  writing,  but  it  goes  upon  the  idea  that 
the  writing  offered  in  evidence  was  not  the  instrument  of  the  party 
whose  name  is  signed  to  it;  that  it  was  procured  under  such  cir- 
cumstances by  the  other  side  as  estops  that  side  from  using  it  or 
relying  on  its  contents;  not  that  it  may  be  contradicted  by  oral  tes- 
timony, but  that  it  may  be  shown  by  such  testimony  that  it  cannot 
be  lawfully  used  against  the  party  whose  nami  is  signed  to  it. 

Judgment  affirmed.' 


VAN  SCHOICK  V.  NIAGARA  FIRE  INSURANCE  CO. 

68  N.Y.  434-  — 1877- 

FoLGER,  J.  — This  was  an  action  upon  a  policy  of  fire  insurance. 
It  contained  this  condition:  "Any  interest  in  property  insured  not 
absolute,  or  that  is  less  than  a  perfect  title,  or  if  a  building  is 
insured  that  is  on  leased  ground,  the  same  must  be  specifically  rep- 
resented to  the  company,  and  expressed  in  this  policy  in  writi.ig, 
otherwise  the  insurance  shall  be  void."  The  fact  is,  that  part  of 
the  property  described  in  the  policy,  as  subject  of  the  insurance, 
was  a  building  on  leased  ground.  That  fact  was  not  expressed  in 
writing  in  the  policy.  The  defendant  claims  that  thereby  the 
insurance  was  void,  and  puts  itself  thereon  as  a  defense  to  the 
action.     It  is  to  be  observed  of  this  condition,  that  it  is  not  one  of 


'  See  the  discussion  of  tliis  case  in  New  York  Life  Ins.  Co.  v.  Flete/ier,  iij 
U.  S.  519,  reported  herein  at  p.  527;  and  also  the  comments  upon  this  case 
and  later  decisions  of  the  same  court,  in  Franklin  Fire  Jns.  Co.  v.  Martin,  40 
N.  J.  L.  568.  reported  herein  at  p.  435  (439). 


WAIVER   AND   ESTOPPEL.  429 

those  which  are  subsequent  to  the  formation  of  the  contract,  a 
breach  of  which  may  occur  after  there  has  been  a  valid  contract 
made  and  entered  into,  and  continued  in  existence  for  a  part  of  its 
prescribed  term.  It  is  a  condition  precedent,  lying  at  the  threshold 
of  the  making  of  the  contract,  and  which  if  not  then  performed,  or 
not  then  obviated,  prevents  the  formation  of  an  enforceable  con- 
tract. It  is  obvious,  that  this  building  being  upon  leased  ground, 
the  very  moment  that  the  policy  passed  from  the  defendant  to  the 
plaintiff,  the  insurance  on  it  was  void,  if  the  condition  holds.  They 
were  concurrent  acts,  the  delivery  of  the  contract,  and  a  breach  of 
this  condition;  so  that  at  the  same  instant  that  the  defendant  said 
we  insure  this  building,  at  the  same  instant  the  condition  was  broken 
and  the  insurance  was  void.  So  that  if  nothing  is  shown  to  break 
the  rigid  effect  of  this  condition,  there  never  was  any  insurance  by 
this  defendant  upon  that  building.  We  would  scarce  expect  two 
parties  to  go  through  so  senseless  and  trifling  an  act,  if  the  facts 
were  known  to  each  at  the  time;  but  would  rather  conclude  that 
they  had  by  words  or  act  agreed  that  the  condition  should  not  be 
considered  as  binding.  "  If  these  defendants  were  an  entity,  and 
could  have  stood  near  to  that  building,  when  the  oral  negotiation 
for  insurance  was  made  and  completed,  and  have  seen  "  and  known 
that  it  was  upon  leased  ground;  "  could  it  fairly  be  contended  that 
they  would  have  offered  to  the  plaintiff,  or  that  he  would  knowingly 
have  received,  as  the  correctly  written  evidence  of  the  contract, 
this  policy,  with  the  condition  in  question,  contained  in  it  as  an 
operative  and  binding  clause?  We  cannot  suppose  that  either  plain- 
tiff or  defendant  would  do  the  utterly  absurd  thing  of  making,  with 
deliberation  and  knowledge,  a  contract  that  was  void  from  incep- 
tion, and  was  in  contradiction  of  the  facts  and  statements  of  the 
negotiation."  It  is  plain  that  the  plaintiff  and  the  agent  meant  to 
contract  and  did  contract  for  the  insurance  of  that  building,  as  a 
building  on  leased  land.  Cone  v.  Niagara  F.  Ins.  Co.,  60  N.  Y.  619. 
Hence  we  are  not  surprised  that  the  plaintiff  claims  that  the  fact 
that  the  building  was  on  leased  ground,  was  made  known  to  the 
defendant  when  the  policy  was  applied  for;  and  that  the  policy  was 
delivered  and  the  premium  accepted  by  them,  without  insisting  upon 
the  fact  and  the  condition.  He  makes  that  action  of  the  company, 
with  that  knowledge,  his  reply  to  their  defense  based  on  that  con- 
dition and  its  breach.     *     *     * 

And  so  again  comes  up  the  oft-recurring  and  still  vexed  question, 
"between  insurance  companies  and  their  policy-holders,  whether  a 
fact,  thoroughly  well  known  and  comprehended  by  both  sides  to  the 
contract  before  it  is  delivered,    may,    by  force  of  some  condition, 


430  WAIVER   AND    ESTOPPEL. 

crouched  unseen  in  the  jungle  of  printed  matter  with  which  a 
modern  policy  is  overgrown,  make  a  defense  for  the  company,  after 
the  catastrophe  and  damage  has  happened  against  which  it  professes 
to  guard.  It  is  to  be  confessed,  that  the  decisions  in  this  State  do 
not,  upon  a  cursory  perusal  at  least,  seem  strictly  in  harmony  in 
regard  to  it.  There  are  cases  which  hold  that  where  an  application 
is  made  a  part  of  the  policy  by  the  terms  of  it,  and  some  false  asser- 
tion has  been  inserted  in  the  application  by  the  agent,  when  the 
truth  has  been  at  the  same  time  well  known  to  him,  that  the  insured 
shall  not  be  prejudiced  thereby.  Rowley  v.  The  Empire  Ins.  Co., 
3  Keyes,  557;  Plumb  ".  Catt.  Ins.  Co  ,  18  N.  Y.  392;  Ames  v.  N.  V. 
Ins.  Co  ,  14  N.  Y.  253.  There  are  others,  where  the  fact  fell 
within  the  condemnation  of  some  condition  of  the  policy;  yet  as 
the  fact,  as  it  existed,  was  known  to  the  company,  it  was  held  to 
be  estopped  from  setting  up  the  condition  against  a  recovery.  14 
N.  Y,  supra;  Bidwell  v.  N.  IV.  Ins.  Co..,  24  Id.  302;  Bodine  v. 
Exchange  Ins.  Co.,  51  Id.  117.  There  are  others  in  which  there  was 
a  suit  in  equity,  seeking  a  reformation  of  the  contract,  and  it  was 
held  that  the  facts  showed  unmistakably,  that  the  parties  never 
meant  to  enter  into  a  contract  with  such  a  condition  or  description 
in  it  as  was  set  up  against  a  recovery;  Cone  v.  Niagara  Ins.  Co.,  60 
N.  Y.  619;  Mahar  \.  Hibernia  his.  Co..,  67  Id.  283.  In  the  latter 
case,  the  facts  made  a  clear  estoppel  in  pais  against  the  company. 
It  has  also  been  held,  that  a  warranty,  part  of  the  printed  matter 
of  the  policy,  has  been  dispensed  with  by  the  oral  agreement  of  the 
parties  made  before  the  delivery  of  the  policy;  McCall  v.  Sun  Mut. 
Ins.  Co..,  66  N.  Y.  505.  On  the  other  hand,  in  an  action  at  law,  it 
has  been  held,  that  where  the  terms  of  the  policy  are  clear  and 
unambiguous,  parol  proof  is  inadmissible  to  vary  them,  or  to  show 
that  either  or  both  parties  were  not  aware  that  they  were  e.xchang- 
ing  a  contract  such  as  was  requested,  and  as  agreed  with  the  facts 
in  the  situation  of  the  property.  Pindar  ■>•.  Resolute  Ins.  Co.,  47  N. 
Y.  114.  See  also  Rohrbach  v.  Germania  Ins.  Co.,  62  Id.  613.  And 
so  it  has  been  held  that  parol  proof  is  not  admissible,  to  show  that 
both  parties  knew  that  a  statement  in  an  application  for  a  policy 
was  not  true.  Ripley  v.  yEtna  Ins.  Co.,  30  N.  Y.  136.  Other  cases 
bearing  upon  the  subject  might  be  cited  —  quafitum  suff. 

There  is  no  doubt  but  that,  ordinarily  considered,  this  condition 
in  a  policy  was  a  warranty  that  the  building  did  not  stand  upon 
leased  land;  and  that  the  truth  of  that  warranty  became  a  condition 
precedent  to  any  liability  on  the  part  of  the  defendant.  Yet,  there 
is  no  doubt,  too,  that  a  condition  in  a  policy  may  be  waived  by  the 
insurer,  or,  as  some  cases  put  it,  he  be  estopped  from  setting  it  up. 


WAIVER   AND    ESTOPPEL.  43 1 

and  that  such  result  may  be  worked  by  parol,  or  by  act  without 
words.  It  has  been  held  over  and  over,  that  the  customary  clause 
in  a  policy,  that  it  will  not  be  binding  upon  the  insurer  until  the 
premium  is  paid  m  fact,  may  be  waived  by  parol,  or  by  act,  and 
the  policy  may  be  delivered  and  become  a  binding  contract  upon  the 
insurer,  without  payment  in  hand  of  the  premium;  Trustees^  etc.  v. 
Br.  Ins.  Company^  19  N.  Y.  305;  Sheldon  v.  Atlantic  F.  Ins.  Co.,  26 
Id.  460;  Woodw.  Po.  Ins.  Co.,  32  Id.  619;  Boehen  v.  Wms.  B.  City  Ins. 
Co.,  35  Id.  131;  Bodine  v.  Ins.  Co.,  51  Id.  117.  As  to  other  waivers, 
see  Ludwig  v.  Jersey  City  Insurance  Company,  48  N.  Y.  384,  and  cases 
there  cited;  Shearman  v.  Niagara  Fire  Insurance  Company,  46  Irl. 
532.  Now,  in  this  first  class  of  cases,  it  has  been  thought  that  the 
fact  that  the  insurer  delivered  to  the  insured  the  written  contract, 
as  the  consummated  agreement  between  them,  and  did  not  then 
exact  present  payment  of  the  premium  as  a  necessary  precedent  to 
delivery,  was  too  plainly  in  contradiction  with  the  condition  for 
prepayment,  for  it  to  be  supposed  that  it  was  meant  by  the  insurer 
or  supposed  by  either  party  that  it  was  intended  to  make  that  con- 
dition a  potent  part  of  the  contract.  Such  a  provision,  it  is  said, 
could  have  no  effect  upon  the  delivered  and  perfect  contract  in 
which  it  was  contained;  19  N.  Y.,  supra.  It  would  be  imputing  a 
fraudulent  intent  to  the  defendant  in  this  case,  to  say  or  to  think  that 
they  did  not  mean  when  they  delivered  this  policy  to  the  plaintiff, 
to  give  him  a  valid  and  binding  contract  of  insurance,  or  that  they 
did  not  mean  that  he  should  believe  that  he  had  one,  or  that  they 
did  not  suppose  that  he  did  so  believe.  And  such  imputation  can 
be  avoided  only  by  supposing  that  it  had  overlooked  this  con- 
dition, and  so  forgotten  to  express  the  fact  as  to  the  building,  in 
writing,  upon  the  policy;  or  that  it  waived  the  condition,  or  held 
itself  estopped  from  setting  it  up.  The  condition  of  prepayment 
of  premium  is,  like  this  under  consideration,  one  at  the  threshold 
of  the  making  of  the  contract,  and  if  it  is  not  observed,  no  valid 
contract  is  made  unless  it  is  stepped  over  or  thrust  aside.  It  is 
consistent  with  fair  dealing  and  a  freedom  from  fraudulent  purpose, 
to  hold  that  one  or  the  other  was  done;  that  is,  that  there  was  a 
waiver,  or  is  estoppel. 

There  are  other  conditions  precedent  which  may  be  waited. 
Thus,  in  Myers  \.  life  Insurance  Company,  27  Penn.  St.  268,  it  is  said 
that  the  countersigning  by  the  agents  is  under  some  circumstances 
not  essential,  though  required  by  condition.  The  ground  there 
stated  is,  that  on  an  equitable  interpretation  of  the  whole  contract, 
it  may  become  the  duty  of  the  court  to  dispense  with  a  portion  of 
the  forms  of  the  contract,  if  it  can  find  any  reliable  substitute  for 


432  WAIVER    AND    ESTOPPEL. 

them;  on  the  principle  that  cures  defective  execution  of  powers, 
where  the  intention  to  execute  is  sufficiently  plain.  The  contract 
was  to  be  complete  when  delivered  by  the  agents,  and  countersign- 
ing by  them  was  to  be  the  appointed  evidence  of  its  proper  delivery. 
There  may  be  other  evidence,  to  be  regarded  as  equivalent.  So 
here,  it  was  not  that  the  defendant  would  not  at  all  insure  a  build- 
ing on  leased  lands.  They  did  agree  to  take  a  risk  upon  it.  Bat  to 
have  it  insured  by  them,  the  fact  of  it  being  on  leased  land  must 
be  expressed  to  them.  This  was  done.  As  evidence  that  it  was 
done,  it  must,  they  said  in  the  policy  afterwards  delivered,  appear 
in  writing  on  the  policy.  This  is,  like  countersigning  by  agent,  but 
one  of  the  forms  of  making  the  contract.  That  the  policy  was  deliv- 
ered, and  the  premium  recei^^ed,  with  full  purpose  of  insuring  that 
building,  with  full  purpose  of  mriking  a  valid  and  obligatory  con- 
tract, is  evidence  that  through  neglect  or  forgetfulness  one  of  the 
forms  was  not  observed;  or  that  it  was  waived  by  the  parties. 

This  case  is  to  be  distinguished  from  that  of  Pindar^  47  N.  Y. 
114.  There,  Pindar  asked  a  policy  in  a  certain  form  of  words. 
The  insurer  issued  it  to  him  in  a  different  form,  and  in  such  form  as 
would  not  cover  certain  classes  of  goods,  and  as,  by  the  presence  of 
those  classes  in  the  store,  rendered  the  whole  policy  void.  It  was 
not  proposed  to  show  that  the  insurer  knew  that  the  very  class  of 
goods  on  which  insurance  was  sought  was  in  the  store,  and  that  the 
policy  was  delivered  with  the  purpose  to  insure  that  class,  and  with 
the  mutual  understanding  that  by  the  policy  it  was  insured.  Hence 
that  case  differs  from  this,  and  it  was  properly  held  that  Pindar  was 
bound  by  his  contract.  In  RohrbacJis  Case,  supra,  the  decision  went 
upon  the  effect  of  a  peculiar  clause  in  the  policy,  and  in  that  fact  is 
quite  different  from  this.  Chase  v.  Hamilton  Ins.  Co.,  20  N.  Y.  52, 
is  put  upon  a  ground  very  like  that  in  Rohrbach' s  Case;  that  it  was 
printed  in  the  application,  that  the  company  would  not  be  bound  by 
knowledge  of  the  agent,  and  that  the  company  could  not  be  held 
thereby,  unless  there  was  fraud,  or  prevention  of  the  application 
from  making  a  true  statement.  Ripley  v.  The  .Etna  Insurance  Com- 
pany, 30  N.  Y.  136,  is  to  be  distinguished  from  this  in  hand.  There 
the  representation  or  warranty  was  promissory.  It  was  an  agree- 
ment by  the  applicant  that  he  would  thereafter  keep  a  watchman  in 
his  mill  of  nights.  This  looked  to  the  future  conduct  on  his  part. 
It  was  not  a  part  of  the  form  of  the  contract.  And  though  the 
agent  of  the  insurer  knew  the  custom  of  the  applicant  had  not 
been  to  keep  a  watchman  in  his  mill  from  midnight  on  the  last  day 
of  the  week  till  midnight  on  the  first  day  of  the  next  week,  that 
did  not  affect  his  promise  thereafter  to  do  differently.     It  is  also 


WAIVER   AND    ESTOPPEL.  433 

said  in  that  .case,  that  there  may  be  a  waiver  of  conditions,  but  only 
on  an  agreement  founded  on  a  valuable  consideration,  or  when  the 
act  relied  upon  as  a  waiver  is  such  as  to  estop  a  party  from  insist- 
ing on  the  condition.  In  the  case  in  hand,  there  is  a  consideration 
in  the  premium  paid,  which  would  not  have  been  done  with  an  under- 
standing that  the  condition  should  remain  and  be  enforced,  thus 
making  the  payment  futile.  In  the  purview  of  some  of  the  cases 
there  is  also  an  estoppel. 

It  is  difficult  to  make  all  the  cases  upon  this  subject  harmonize; 
but  by  the  force  of  authority,  we  are  constrained  to  hold  that  such 
a  condition  as  this  may  be  waived  by  the  insurer,  by  express  words 
to  that  effect,  or  by  acts  done  under  such  circumstances  as  would 
otherwise  impute  a  fraudulent  purpose,  and  as  will  estop  him  from 
setting  up  the  condition  against  the  insured.     *     *     * 

We,  therefore,  conclude  that  the  judgment  appealed  from  should 
be  affirmed. 

Church,  Ch.  J.,  Andrews  and  Miller,  JJ.,  concur;  Allen, 
Rapallo  and  Earl,  JJ.,  dissent. 

Judgment  affirmed. 


GRAY  AND  Another  v.  GERMANIA    FIRE    INSURANCE  CO. 

155  N.  Y.  180.  —  xSgS. 

Martin,  J.  — The  only  question  we  are  called  upon  to  determine 
in  this  case  is  whether  the  knowledge  of  the  defendant's  agent  that 
the  plaintiffs  intended  to  procure  other  insurance  upon  the  property 
covered  by  the  defendant's  policy  constituted  a  waiver  of  the  pro- 
vision therein  prohibiting  other  insurance  without  the  indorsement 
upon  the  policy  of  an  agreement  to  that  effect.  The  courts  below 
have  so  held.  This  conclusion  was  based  upon  the  theory  that  as  the 
defendant's  agent  knew  that  the  plaintiffs  intended  to  procure  other 
insurance  when  the  policy  in  suit  was  issued,  and  delivered  it  with 
that  knowledge,  it  constituted  a  waiver  of  its  provision  as  to  other 
insurance.  Manifestly,  this  theory  cannot  be  sustained.  It  is  well 
settled  in  this  State  that  where  an  insurance  company  issues  a  policy, 
with  full  knowledge  of  facts  which  would  render  it  void  in  its  incep- 
tion if  its  provisions  were  insisted  upon,  it  will  be  presumed  that  it 
by  mistake  omitted  to  express  the  fact  in  the  policy,  waived  the 
provision  or  held  itself  estopped  from  setting  it  up,  as  a  contrary 
inference  would  impute  to  it  a  fraudulent  intent  to  deliver  and 
receive  pay  for  an  invalid  instrument.  Van  Schoickv.  Niagara  F. 
Ins.   Co.,   68  N.   Y.  434;    Whited  v.  Germafiia  F.Ins.   Co.,  76  N.  Y. 

LA.W  OF  INSURANCE  —  28 


434  WAIVER   AND    ESTOPPEL. 

415;  Richmond  v.  Niagara  F.  Ins.  Co.,  79  N.  Y.  230;  Woodruff  v. 
Imperial  F.  Ins.  Co.,  83  N.  Y.  133;  Short  v.  Home  Ins.  Co.,  90  N.  Y. 
i6;  Foncard  \.  Continental  Ins.  Co.,  142  N.  Y.  382;  JFoodv.  Ameri- 
can F.  Ins.  Co.,  149  N.  Y.  382;  Robbins  v.  Springfield  F.  er*  M.  Ins. 
Co.,  149  N.  Y.  477,  484. 

But  it  is  manifest  that  that  principle  has  no  application  to  the 
facts  in  this  case.  When  the  defendant's  policy  was  delivered 
neither  of  the  other  policies  had  been  issued,  but  were  subsequently 
obtained.  Consequently,  the  defendant's  policy  was  valid  in  its 
inception.  If  it  became  invalid  it  was  by  the  act  of  the  plaintiffs  in 
subsequently  procuring  additional  insurance,  without  obtaining  an 
indorsement  upon  the  policy  of  the  defendant's  consent.  As  the 
defendant  issued  to  the  plaintiffs  a  policy  which  was  valid  when 
delivered,  the  fact  that  they  informed  the  defendant's  agent  of  their 
intention  to  subsequently  procure  other  insurance  was  insufficient  to 
justify  the  courts  below  in  holding  that  there  was  a  waiver  of  that 
c:)ndition,  or  that  the  defendant  was  estopped  from  insisting  upon 
it.  Baumgartel  w.  Providence-Washington  Ins.  Co.,  136  N.  Y.  547; 
Moore  v.  H.  F.  Ins.  Co.,  141  N.  Y.  219;  McNierney  v.  Agricultural 
Ins.  Co.,  48  Hun,  239. 

The  distinction  between  the  knowledge  of  an  existing  fact  which 
renders  a  policy  void  when  delivered  and  the  omission  of  the  insured 
to  give  notice  of  and  procure  the  required  consent  to  a  subsequent 
act,  which,  by  its  conditions  invalidated  it,  although  previously 
consented  to,  was  clearly  pointed  out  in  the  authorities  cited. 

The  decisions  of  the  courts  below  are  at  variance  vv^ith  the  principle 
that  written  contracts  cannot  be  controlled  or  varied  by  oral  evi- 
dence, and  that  a  written  instrument  must  be  regarded  as  the  recep- 
tacle of  the  entire  contract  between  the  parties,  and  merges  all 
previous  oral  agreements  in  it. 

Nor  do  we  think  the  contention  of  the  respondents,  that  they  were 
entitled  to  recover  upon  a  parol  contract  of  insurance,  made  with 
the  agent,  can  be  sustained.  There  was  no  proof  that  the  defend- 
ant's agent  ever  agreed  to  issue  a  policy  different  from  the  one  deliv- 
ered, or  that  he  agreed  that  other  insurance  might  be  procured 
without  the  indorsement  required.  It  is  manifest  that  this  action 
was  upon  the  policy  issued  by  the  defendant,  and  was  not  based 
upon  any  other  agreement  between  the  plaintiffs  and  the  agent  of 
the  defendant. 

The  judgment  of  the  General  Term  and  of  the  trial  court  should 
be  reversed  and  a  new  trial  granted,  with   costs  to  abide  the  event. 

All  concur,  except  Gray,  J.,  absent 

Judgment  reversed. 


WAIVER   AND    ESTOPPEL.  435 

FRANKLIN  FIRE  INS.   CO.   v.  MARTIN. 

40  N.  J.  L.  568.  —  1878. 

This  action  was  brought  upon  a  policy  of  insurance,  under  seal, 
bearing  date  April  27th,  1870,  issued  to  the  plaintiff  as  owner  of  the 
property  insured.  At  the  trial  before  the  Circuit  a  verdict  was  had 
by  Martin,  the  plaintiff  below,  whereupon  this  writ  of  error  was 
sued  out  by  the  defendant.  Errors  were  assigned  upon  the  record, 
and  upon  the  proceedings  at  the  trial. 

Depue,  J.  — *  *  *  Fourth.  In  the  policy  the  property  insured 
is  described  as  a  building  occupied  "  as  a  dwelling  and  boarding- 
house."  This  description  defines  the  character  of  the  risk  assumed, 
and  is  a  warranty  that  the  property,  at  the  time  of  the  insurance, 
was  used  for  that  purpose.  Dewces  v.  Manhattan  Ins.  Co.,  6  Vroom, 
366.  In  fact,  it  was  at  that  time  occupied  as  a  dwelling  and  board- 
ing-house, and  also  as  a  country  tavern,  and  in  a  room  back  of  the 
l)ar-room  there  was  kept  for  use  a  billiard-table.  The  property 
continued  to  be  so  used  until  the  fire  occurred. 

In  the  conditions  of  insurance  it  is  stipulated  that  if  the  assured 
shall  cause  the  buildings,  goods  or  other  property  insured  to  be 
described  in  his  policy  otherwise  than  as  they  really  are,  so  that 
they  be  charged  at  a  lower  premium  thin  is  therein  proposed,  the 
policy  shall  be  of  no  force.  In  the  classification  of  risks,  drinking- 
houses  and  taverns  were  classified  as  extra  hazardous,  and  subject 
to  a  higher  premium  than  hazardous  risks;  and  billiard-rooms  were 
named  in  the  specially  hazardous  class,  subject  to  a  still  higher  pre- 
mium. Dwelling  and  boarding-houses  were  not  mentioned  in  any 
special  classification.  The  consequence  of  a  misdescription  of  the 
use  of  the  premises  at  the  date  of  the  insurance  is  prescribed  by 
the  condition  mentioned.  It  does  not  avoid  the  policy  simply  for  a 
misdescription  m  that  respect.  To  accomplish  that  result,  the  mis- 
representation must  have  been  operative  to  cause  the  insurance  to 
be  effected  at  a  lower  premium  than  it  would  otherwise  be  subject 
to;  and  that  question  was  properly  left  to  the  jury.  Columbian  Ins. 
Co.  V.  lawrence,  2  Peters,  46;   i  Bigelow's  Ins.  Cas.  264. 

Fifth.  The  insurance  was  obtained  through  one  Buckley,  an  agent 
of  the  company.  The  judge  received  evidence  that  he  inspected 
the  premises  at  the  time  of  taking  the  proposals  of  insurance,  and 
knew  the  manner  in  which  they  were  then  used,  and  left  the  ques- 
tion to  the  jury  whether  the  parties  themselves  did  not  knowingly 
use  the  term  boarding-house  to  describe  the  very  thing  that  was 
insured;  and  if  they  did,  in  that  view  the  knowledge  of  the  agent 
was  material:  That  if  the  agent,  acting  on  his  own  knowledge,  mak- 


435  WAIVKK    AND    ESTOI'I'EL. 

ing  Ills  own  survey,  undertake  to  describe  the  building,  it  is  his 
description  of  the  risk,  and  if  the  company  accept  it,  it  agrees  that 
the  term  used  shall  describe  the  risk  as  it  existed. 

The  evidence  in  relation  to  the  agent's  knowledge  of  the  actual 
condition  of  the  property  was  competent  on  the  question  whether 
the  assured,  by  the  misdescription,  in  fact  procured  the  insurance  to 
be  made  at  a  lower  premium  than  would  otherwise  have  been 
demanded.  But  these  instructions  were  erroneous.  They  left  the 
jury  to  find  from  such  knowledge  by  the  agent  that  the  company 
insured  a  country  tavern  under  the  description  of  a  dwelling  and 
boarding-house  —  thus  making  a  different  contract  from  that 
expressed  on  the  face  of  the  policy. 

There  is  a  distinction  between  a  representation  which  is  merely 
collateral  to  the  contract  of  insurance,  and  a  i^-arranty  or  condition 
which  is  part  of  the  contract  itself.  A  representation  collateral  to 
the  contract  will  not  avoid  the  policy  though  it  be  untrue,  unless  it 
was  fraudulently  made;  but  the  validity  of  the  entire  contract 
depends  upon  the  truth  or  fulfilment  of  the  warranties  and  con- 
ditions. Deduces  v.  Manhattan  Ins.  Co.,  5  Vroom,  247.  Where  the 
defense  is  that  a  representation  collateral  to  the  contract  was  false, 
and  was  fraudulently  made,  the  gist  of  the  defense  is  the  fraud  of 
the  plaintiff  by  which  the  insurer  was  misled,  and  induced  to  make 
the  contract  of  insurance.  To  such  a  defense  proof  that  the  agent 
of  the  insurer  had  knowledge  of  the  true  state  and  condition  of  the 
premises  is  a. complete  answer;  for  with  such  knowledge  no  decep- 
tion is  practiced.  Marshall  -v.  Columbian  Mut.  Fire  Ins.  Co..,  7  Foster, 
157;  Protection  Ins.  Co.  v.  Harmer,  2  Ohio  St.  R.  452;  Patten  v. 
Insurance  Co.,  40  N.  H.  375;  State  Mutual  Ins.  Co.  v.  Arthur,  30 
Penn.  St.  315.  A  different  rule  prevails  with  respect  to  a  warranty 
contained  in  the  policy;  if  it  is  in  fact  not  complied  with,  the  con- 
tract falls,  without  regard  to  the  knowledge  of  the  insurer  of  the 
actual  condition  of  the  property  insured.  This  distinction  between 
a  representation  collateral  to  the  contract  and  a  warranty  which  is 
part  of  it  is  taken  in  State  Mutual  Ins.  Co.  v.  Arthur,  supra,  and  it  was 
there  held  that  knowledge  of  the  insurer  or  its  agent  of  the  exact 
state  and  condition  of  the  premises  will  relieve  the  insured  from  the 
consequences  of  a  false  or  imperfect  representation,  but  not  as 
against  a  warranty  not  complied  with. 

If  the  proposal  for  insurance  be  prepared  by  the  agent  of  the  com- 
pany, and  he  misdescribe  the  premises,  with  full  knowledge  of  their 
actual  condition,  and  there  be  no  fraud  or  collusion  between  the 
agent  and  the  insured,  the  contract  of  insurance  may  be  reformed 
in  equity,  and  made  to  conform  to  the  condition  of  the  premises  as 


WAIVER   AND    ESTOPPEL.  437 

they  were  known  to  the  agent.  Collett  \.  Morrison,  9  Hare,  162; 
In  re  Universal  Non- Tariff  Fire  Ins.  Co.,  L.  R.  19  Eq.  385;  Malle- 
able Iron  Works  v.  Pha'nix  Ins.  Co.,  45  Conn.  465;  IVoodbury  Savings 
Bank  V.  Charter  Oak  Ins.  Co.,  31  Id.  517;  Maker  v.  Hibernia  Ins.  Co., 
67  N.  Y.  2S3.  But  in  an  action  at  law  upon  the  policy  the  rights  of 
the  parties  must  be  determined  by  tne  contract  of  insurance,  which 
cannot  be  altered  or  modified  by  extrinsic  evidence  of  a  different 
agreement,  to  be  established  from  a  knowledge  of  the  insurer  or  its 
agents  of  the  actual  condition  of  the  property  insured.  Dewees  v. 
Manhattan  Ins.  Co.,  6  Vroom,  366.  When  the  insurer  defends  on 
the  ground  of  a  breach  of  warranty,  it  is  no  answer  that  he  knew 
that  such  warranty  was  not  in  fact  true.  Columbia  Ins.  Co.  v.  Cooper, 
50  Penn.  St.  331.  Thus,  it  being  stipulated  in  the  conditions  of 
insurance  tnat  a  false  description  of  the  property  insured  should 
avoid  the  policy,  it  was  held  that  a  misdescription  defeated  the 
plaintiff's  right  to  recover  under  it,  though  the  statements  were 
known  to  be  false  by  the  insurer's  agent  who  prepared  the  descrip- 
tion, and  informed  the  plaintiff  that  in  that  respect  the  description 
was  immaterial.  Smith  v.  Cash  Mut.  Ins.  Co.,  24  Penn.  St.  320. 
Evidence  is  not  competent  in  an  action  on  the  policy  to  show  that  the 
matter  complained  of  as  a  breach  of  warranty  was  mentioned  to  the 
agent  at  the  time  of  the  application,  and  that  he  said  it  was  of  so 
little  consequence  that  it  need  not  be  mentioned  in  the  policy. 
Loehner  v.  Home  Mut.  Ins.  Co.,  17  Mo.  247.  Nor  will  it  be  received 
to  show  that  the  insured  informed  the  agent  of  the  exact  condition 
of  his  title,  and  that  the  agent  filled  out  the  application  in  his  own 
language.  Hough  v.  City  Fire  Ins.  Co.,  29  Conn.  10.  The  decided 
weight  of  authority  is  against  the  admission  of  such  evidence  as  a 
clear  violation  of  the  salutary  rule  of  law,  that  all  prior  statements 
are  merged  in  the  concluded  contract,  and  that  a  contract  put  in 
writing  cannot  be  added  to  or  altered  by  parol  testimony.  Barrett 
V.  Union  Mut.  Ins.  Co.,  7  Cush.  175;  Lowell -v.  Middlesex  Ins.  Co.,  8 
Id,  127;  Jenkins  v.  Quincy  Mut.  Ins.  Co.,  7  Gray,  370;  Kibbe  v. 
Hamilton  Mut.  Ins.  Co.,  11  Id.  163;  Jennings  ".  Chenango  County 
Ins.  Co.,  2  Denio,  75;  Rohrbach  v.  Germania  Ins.  Co.,  62  N.  Y.  47; 
Columbia  Ins.  Co.  v.  Cooper,  50  Penn.  St.  331;  Sheldon  v.  Hartford 
Fire  Ins.  Co.,  22  Conn.  235.  Many  of  the  cases  to  the  same  effect 
are  cited  by  the  chief  justice  in  his  opinion  in  De^uees  v.  Manhattan 
Ins.  Co.,  as  reported  in  6  Vroom,  366,  which,  in  itself,  is  a  weighty 
authority  against  the  competency  of  such  evidence. 

In  Sheldon  v.  Hartford  Fire  Ins.  Co.,  supra,  it  was  held  that  where 
the  policy  and  survey  constituted  a  contract  between  the  parties, 
and  there  was  no  imperfection  or  ambiguity  in  the  contract,  evidence 


438  WAIVER   AND    ESTOrPEL. 

of  parol  representations  made  to  the  agent  prior  to  the  issuing  of 
the  policy  could  not  be  received  to  explain  or  qualify  the  contract. 
See  also  Glendale  Mfg.  Co.  v.  Protection  Ins.  Co.,  21  Conn.  19-37. 
In  Feck  V.  ^V.  Z.  Miit.  Ins.  Co.,  22  Conn.  575,  the  evidence  was 
received  not  to  vary  the  terms  of  the  policy,  but  for  the  purpose  of 
rebutting  the  presumption  that  the  policy  was  a  wagering  policy. 
In  Bevin  v.  Conn.  Mut.  Ins.  Co.,  23  Conn.  244,  it  was  admitted  solely 
for  the  purpose  of  showing  knowledge  by  the  company  of  the 
insured's  intention  to  travel,  in  violation  of  the  conditions  of  the 
policy,  to  give  effect  to  a  waiver  arising  from  subsequent  receipts 
of  premiLims.  In  Bebee  v.  Hartford  Co.  Mut.  Ins.  Co.,  25  Conn.  51, 
proof  of  communications  made  by  the  insured  to  the  agent  was 
received  to  show  that  the  insured  had  not  fraudulently  concealed 
facts  material  to  the  risk.  In  Hough  v.  City  Fire  Ins.  Co.,  29  Conn. 
10,  the  court  had  decided  that  there  was  no  warranty  of  the  con- 
dition of  the  title  of  the  insured,  and  the  evidence  was  considered 
legitimate  to  meet  the  claim  of  the  company  that  the  insured  by  a 
misrepresentation  had  rendered  the  insurance  void.  Woodbury 
Savings  Bank  \.  Charter  Oak  Ins.  Co.,  31  Conn.  517,  was  in  equity 
on  a  bill  to  reform  the  policy  and  enjoin  the  defense  in  an  action  at 
law  upon  it.  In  none  of  these  later  cases  was  Sheldon  v.  Hartford 
Fire  Ins.  Co.  overruled;  nor  was  parol  evidence  of  prior  transactions 
with  the  agent  of  the  insurer  admitted  to  vary  the  terms  of  the 
policy,  or  to  make  a  contract  different  from  that  expressed  therein. 
The  leading  case  in  New  York  is  Jennings  v.  Chenango  County 
Mut.  Ins.  Co.,  2  Denio,  75.  This  case  held,  in  accordance  with  a 
series  of  cases  beginning  with  Vandevoort  v.  Columbian  Ins.  Co.,  2 
Cair.es,  155,  that  parol  evidence  that  the  insured  truly  informed 
the  agent  of  the  insurer,  who  prepared  the  application,  as  to  the 
situation  of  the  premises,  was  not  competent  to  vary  a  warranty  on 
that  subject,  or  save  the  insured  from  the  consequences  of  a  breach 
of  the  contract  of  insurance.  This  case  was  recognized  as  good 
law  by  the  courts  of  that  State  until  the  decision  of  Plumb  v.  Catta- 
raugus Ins.  Co.,  18  N.  Y.  392,  where  such  evidence  was  held  by  a 
divided  court  to  be  admissible,  not  to  change  the  contract,  but  to 
produce  the  same  result  under  the  guise  of  an  equitable  estoppel. 
Plumb  v.  Cattaraugus  Ins.  Co.  was  followed  in  Rowley  v.  Empire  Ins. 
Co.,  36  N.  Y.  550.  It  was  justly  criticised  and  condemned  as  founded 
on  erroneous  views,  by  the  chief  justice  in  Detvees  v.  Manhattan  Ins. 
Co.,  as  reported  in  6  Vroom,  366;  and  with  Roxvley  v.  Empire  Ins.  Co., 
has  been  greatly  shaken  by  subsequent  decisions  in  the  same  court, 
if  it  was  not  practically  overruled  by  Rohrbach  v.  Germania  Ins.  Co., 
62  N.  Y.  47-63.     In  Maker  v.  Hibernia  Ins.  Co.,  67  N.  Y.  283,  refor- 


WAIVER   AND    ESTOPPEL.  439 

mation  of  the  contract  of  insurance  seems  to  have  been  regarded  as 
the  appropriate  method  of  relief  under  such  circumstances.  The 
condition  of  the  law  on  this  important  subject  in  that  State  is  such 
that  it  would  not  be  advisable  to  adopt  it,  or  prudent  to  endeavor  to 
follow  the  decisions  of  its  courts.  The  discordant  and  irreconcila- 
ble decisions  which  have  grown  out  of  the  departure  from  the  law 
as  held  in  Jennings  v.  Chenango  County  Alut.  Ins.  Co.,  are  cited  by 
Judge  Folger  m  Van  Schoick  v.  Niagara  Fire  Ins.  Co..,  68  N.  Y.  438. 
Some  of  the  conditions  of  the  policy  may  be  controlled  by  evidence 
of  the  knowledge  of  the  parties  at  the  time  the  insurance  was 
effected,  and  others  not;  but  no  rule  or  principle  has  been  promul- 
gated for  ascertaining,  in  advance  of  the  litigation,  what  stipulations 
in  the  contract  belong  to  the  one  class  or  the  other  —  a  condition 
of  the  law  sure  to  result  from  the  effort  to  deal  with  contracts  of 
this  kind,  in  disregard  of  established  rules  of  law,  and  acknowledged 
legal  principles. 

The  Supreme  Court  of  the  United  States  has  held  that  the  policy 
of  insurance  issued  by  the  company,  and  accepted  by  the  insured, 
must  be  taken  to  be  the  final  agreement  of  the  parties,  and  that  if 
by  inadvertence  or  mistake,  stipulated  provisions  were  omitted,  or 
provisions  other  than  those  intended  were  inserted,  the  remedy 
was  in  equity  for  the  correction  of  the  agreement,  and  that  neither 
party  could  resort  to  the  verbal  negotiations  preliminary  to  the 
execution  of  the  policy  to  contradict  or  vary  its  terms,  or  to  ascer- 
tain what  the  contract  really  was.  Ins.  Co.  v.  Lyman,  15  Wall.  664; 
Ins.  Co.  V.  Mozvry,  96  U.  S.  544.  But  in  Ins.  Co.  v.  Wilkinson,  13 
Wall.  222,  the  same  court,  following  Plutnb  v.  Cattaraugus  Ins.  Co., 
and  RoT.vIey  v.  Empire  Ins.  Co.,  held  that  parol  evidence  that  the 
application  of  the  insured  was  prepared  by  the  company's  agent, 
and  that  he  filled  up,  from  inquiries  made  by  himself,  the  answers  to 
the  interrogatories,  the  falsity  of  which  was  the  breach  of  warranty 
relied  on,  was  competent  as  a  matter  of  estoppel.  The  only  other 
cases  cited  for  this  decision  were  Combs  v.  Hannibal  Ins.  Co.,  43 
Mo,  148,  which  was  itself  decided  on  a  following  of  the  two  New 
York  cases  above  cited,  and  IVoodbury  Savings  Bank  v.  Charter  Oak 
Ins.  Co.,  31  Conn.  526,  which  was  a  bill  in  equity  for  the  reforma- 
tion of  the  policy. 

It  is  manifest  that  the  theory  that  such  parol  evidence,  though  it 
may  not  be  competent  to  change  the  v^ritten  contract,  may  be 
received  for  the  purpose  of  raising  an  estoppel  in  pais,  is  a  mere  eva- 
sion of  the  rule  excluding  parol  testimony  when  offered  to  alter  a 
written  contract.  A  party  suing  on  a  contract  in  an  action  at  law 
must  be  conclusively  presumed  to  be  aware  of  what  the  contract 


440  WAIVER    AND    ESTOTPEL. 

contains,  and  the  legal  effect  of  his  agreement  is  that  its  terms  shall 
be  complied  with.  Extrinsic  evidence  of  the  kind  under  considera- 
tion must  entirely  fail  in  its  object  unless  its  purpose  be  to  show 
that  the  contract  expressed  in  the  written  policy  was  not  in  reality 
the  contract  as  made.  A  defendant  cannot  be  estopped  from  making 
the  defense  that  the  contract  sued  on  is  not  his  contract,  or  tliat  his 
adversary  has  himself  violated  it  in  those  particulars  which  are 
made  conditions  to  his  rights  under  it,  on  the  ground  of  negotia- 
tions and  transactions  occurring  at  the  time  the  contract  was  entered 
into,  unless  the  plaintiff  is  permitted  to  show,  from  such  sources, 
that  the  contract,  as  put  in  writing,  does  not  truly  express  the 
intention  of  the  parties.  The  difficulty  lies  at  the  very  threshold. 
An  estoppel  cannot  arise  except  upon  proof  of  a  contract  different 
from  that  contained  in  the  written  policy,  and  an  inflexible  rule  of 
evidence  forbids  the  introduction  of  such  proof  by  parol  testimony 
when  offered  to  vary  or  affect  the  terms  of  the  written  instrument. 
The  subject  has  been  so  fully  and  forcibly  discussed  by  Chief  Justice 
Beasley  in  Deivees  v.  Manhattan  Ins.  Co.  that  it  is  unnecessary  to 
pursue  it  further. 

Nor  is  the  reasoning  of  the  learned  justice  who  delivered  the 
opinion  in  Insurance  Co.  v.  Wilkinson.,  that  the  admission  of  such 
testimony  is  rendered  necessary  by  the  manner  in  which  agents  are 
sent  over  the  country  by  insurance  companies  and  stimulated  by 
them  to  exertions  in  effecting  insurance  —  which  often  leads  to  a 
disregard  of  the  true  principles  of  insurance  as  well  as  fair  dealing 
—  any  more  satisfactory.  It  introduces  into  the  administration  of 
the  law  the  novel  doctrine  that  the  rules  which  regulate  the  admis- 
sion of  evidence  fl  ictuate  with  the  character  of  the  agencies  parties 
employ  in  transacting  business,  and  upon  that  foundation  establishes 
an  exceptional  rule  of  evidence  to  be  applied  to  an  entire  class  of 
contracts  whether  agents,  ignorant,  incompetent  or  unscrupulous, 
were  employed  or  not.  It  leaves  the  whole  subject  of  contracts  of 
insurance  at  the  mercy  of  a  kind  of  evidence  which  is  regarded  as 
too  untrustworthy  and  unreliable  ever  to  control  contracts  in  writing. 

The  cases  usually  cited  for  the  proposition  that  a  contract  of  insur- 
ance is  excepted  out  of  the  class  of  written  contracts  with  respect  to 
the  admissibility  of  parol  evidence  to  vary  or  control  the  written 
contract  will  be  found,  on  examination,  to  be,  to  a  large  extent, 
those  in  which  the  proof  has  been  received  with  a  view  to  the 
reformation  of  the  policy  in  equity  or  to  meet  the  defense  that  the 
contract  was  induced  by  false  and  fraudulent  representations  not 
embodied  in  the  contract,  or  are  the  decisions  of  courts  in  which 
the  legal  and  equitable  jurisdictions  are  so  blended  that  the  func- 


WAIVER   AND    ESTOPPEL.  44I 

tions  of  a  court  of  equity  have  been  transferred  to  the  jury  box. 
A  distinction  is  sometimes  made  between  policies  issued  by  a  stock 
company  and  those  issued  by  a  mutual  company.  This  distinction 
is  without  any  substance.  In  a  mutual  company  the  insured,  by 
taking  out  policies,  become  members  of  the  company.  But,  never- 
t'leless,  a  member  of  a  corporation,  and  even  a  director,  in  dealing 
with  the  corporation,  stand,  with  respect  to  their  contracts,  just  the 
same  as  a  stranger  [Straiton  v.  Allen,  i  C.  E.  Green,  229),  and  the 
powers  of  agents  of  every  kind  of  principals  to  act  for  and  bind 
their  principals  are  determined  by  the  unvarying  rule  of  ascertain- 
ing what  authority  is  delegated  to  them.  How  the  contract  was 
effected,  whether  directly  with  the  insurer  or  by  the  intervention 
of  agents,  is  of  no  consequence.  The  question  of  the  admissibility 
of  the  testimony  does  not  relate  to  the  method  by  which  the  con- 
tract was  made.  It  concerns  the  rule  of  evidence  by  which  the  con- 
tract, however  made,  shall  be  interpreted. 

Upon  principle,  it  is  impossible  to  perceive  on  what  ground  such 
testimony  should  be  received.  A  policy  of  insurance  is  a  contract  in 
writing,  of  such  a  nature  as  to  be  within  the  general  rule  of  law  that 
a  contract  in  writing  cannot  be  varied  or  altered  by  parol  testimony. 
If  it  be  ambiguous  in  its  terms,  parol  evidence  such  as  would  be 
competent  to  remove  an  ambiguity  in  other  written  contracts  may 
be  resorted  to  for  the  purpose  of  explaining  its  meaning.  If  it 
incorrectly  or  imperfectly  expresses  the  actual  agreement  of  the 
parties,  it  may  be  reformed  in  equity.  If  strict  compliance  with 
the  conditions  of  insurance,  with  respect  to  matters  to  be  done  by 
the  insured  after  the  contract  has  been  concluded,  has  been  waived, 
such  waiver  may,  in  general,  be  shown,  by  extrinsic  evidence, 
by  parol.  Further  than  this  it  is  not  safe  for  a  court  of  law  to  go. 
To  except  policies  of  insurance  out  of  the  clas.>  of  contracts  to  which 
they  belong,  and  deny  them  the  protection  of  the  rule  of  law  that  a 
contract  which  is  put  in  writing  shall  not  be  altered  or  varied  by 
parol  evidence  of  the  contract  the  parties  intended  to  make,  as  dis- 
tinguished from  what  appears,  by  the  written  contract,  to  be  that 
which  they  have  in  fact  made,  is  a  violation  of  principle  that  will 
open  the  door  to  the  grossest  frauds.  If,  as  was  said  by  Judge 
Folger,  in  Van  Schoick  v.  Niagara  Fire  Ins.  Co.,  "  a  fact  thoroughly 
well  known  and  comprehended  by  both  sides  to  the  contract  before 
it  is  delivered  may.  by  force  of  some  condition  crouched  unseen  in 
the  jungle  of  printed  matter  with  which  a  modern  policy  is  over- 
grown, make  a  defense  for  the  company,  after  the  catastrophe  and 
damage  have  happened,  against  which  it  professes  to  guard,"  the 
remedy  is  with  the  Legislature  to  prescribe  what  conditions  only 


442  WAIVKR    AND    ESTOl'PEL. 

shall  be  valid,  and  to  compel  the  printing  of  them  in  the  policy,  in 
such  a  manner  as  to  be  capable  of  being  read  and  understood. 
A  court  of  law  can  do  nothing  but  enforce  the  contract  as  the 
parties  have  made  it.  The  legal  rule  that  in  courts  of  law 
the  written  contract  shall  be  regarded  as  the  sole  repository  of  the 
intentions  of  the  parties,  and  that  its  terms  cannot  be  changed  by 
parol  testimony,  is  of  the  utmost  importance  in  the  trial  of  jury 
cases  and  can  never  be  departed  from  without  the  risk  of  disastrous 
consequences  to  the  rights  of  parties. 

In  the  present  case  the  property  insured  was  described  in  the 
policy  as  a  dwelling  and  boarding-house.  There  was  no  ambiguity 
in  the  terms  used  that  justified  resort  to  extrinsic  evidence  to 
explain  the  meaning  of  the  contract.  The  effect  given  to  the  testi- 
mony on  this  subject,  by  the  charge  of  the  court,  was  to  change  the 
terms  of  the  contract  and  reform  it,  and  make  another  and  a  different 
contract.  In  this  there  was  error,  for  which  the  judgment  should 
be  reversed.' 

For  affirmance  —  Dixon,  Clement,  Lilly  —  3. 

For  reversal — The  Chancellor,  Chief  Justice,  Depue,  Reed, 
ScuDDER,  Van  Syckel,  Woodhull,  Dodd,  Green — 9. 


'  "  There  was  a  condition  which  declared  that  '  if  the  premises  hereby  insured 
shall  become  vacated  by  the  removal  of  the  owner  or  occupant,  and  so  remain 
for  a  period  of  more  than  fifteen  days,  without  notice  to  the  company  and  con- 
sent indorsed  hereon,'  it  should  become  void.  The  premises  were  burned  during 
such  a  vacancy,  but  evidence  was  received  and  acted  on  that  before  the  issu- 
ing of  ihe  policy  the  insured  had  stated  lo  the  agent  that  he  expected  during 
the  currency  of  the  policy  to  leave  his  house  vacant  during  a  year  or 
more,  and  was  informed  it  would  make  no  difference.  *  *  *  The  vacancy 
concerning  which  the  parties  conversed,  if  there  was  any  such  conversation, 
was  one  contemplated  in  the  future,  and  the  stipulation  or  understanding,  if  it 
amounted  to  anything,  was  an  executory  contract,  intended  to  form  a  part  of 
the  contract  of  insurance.  This  being  so,  the  doctrine  cannot  be  admitted  that 
any  part  of  the  completed  contract  can  rest  in  parol.  The  policy  was  ihe  con- 
clusion of  the  bargain,  and  its  acceptance  would  exclude  any  parol  promises 
inconsistent  with  it.  There  is  no  resemblance  between  a  parol  variance  of  a 
written  contract,  and  a  waiver  of  a  condition  after  it  has  become  binding  on  the 
parties."  —  Hartford  Ins.  Co.  \.  Davenport,  37  Mich.  608,  611-12,  See  also 
Promissory  Representations,  ante,  p.  118. 


WAIVER   AND    ESTOPPEL.  443 

3.  After  the  Policy  Is  Issued,  but  Before  a  Forfeiture. 

Taylor,  J.,  in  ALEXANDER  7l  CONTINENTAL 
INSURANCE   CO. 

67  Wis.  422,  427  —  1886. 

The  insured  had  taken  a  policy  in  which  there  is  a  condition  that 
the  policy  shall  terminate  if  any  instalment  on  the  premium  note  is 
not  paid  promptly  on  or  before  the  day  it  becomes  due.  The  com- 
pany has  no  place  in  the  vicinity  of  the  insured  where  the  money 
can  be  paid.  The  agent  says  to  the  insured:  "  True,  the  policy 
says  the  liability  of  the  company  shall  cease  immediately  if  the 
money  be  not  paid  on  the  day,  but  I  say  to  you,  as  agent  of  the 
company,  that  I  will  give  you  notice  when  payment  is  required." 
The  insured,  relying  upon  this  promise  of  the  agent,  does  not  pay 
on  the  day.  Two  months  or  more  after  the  day  the  agent  appears 
and  demands  payment,  and  payment  is  made.  No  claim  is  made 
that  there  has  been  a  forfeiture  of  the  policy,  or  that  it  is  necessary 
to  have  the  policy  renewed  by  procuring  the  written  consent  of  the 
company  in  the  manner  prescribed  in  the  contract,  and  the  agent 
renews  his  promise  to  give  notice  when  the  next  and  subsequent 
instalments  should  become  due,  and  says  he  will  call  upon  her  per- 
so:ially  for  payment.  No  notice  is  afterwards  given,  and  no  one 
calls  for  the  money.  The  note  is  retained  by  the  company,  and  not 
presented  for  payment,  nor  payment  thereof  demanded  in  any  way, 
and  in  the  meantime  a  loss  occurs. 

The  condition  or  forfeiture  in  the  policy  having  been  once  waived, 
and  the  insured  having  been  led  to  believe  that  it  would  not  be 
thereafter  enforced,  the  company  cannot  enforce  it  except  by  an 
actual  demand  of  payment  of  the  money  due  on  the  note  and  a  neg- 
lect or  refusal  to  pay  the  same,  or  by  a  return  of  the  note  to  the 
insured  with  notice  that  the  company  insists  upon  the  condition  in 
the  policy.  See  Marcus  v.  St.  L.  Miit.  L.  Ins.  Co.,  68  N.  Y.  625; 
Dilleber  v.  K.  L.  Ins.  Co.,  76  N.  Y.  567;  She/don  v.  A.  F.  6^  M.  Ins. 
Co.,  26  N.  Y.  460,  465;  Goit  V,  National  P.  Ins.  Co.,  25  Barb.  189; 
Devine  v.  Home  Ins.  Co.,  32  Wis.  471,  477;  Hoiuell  v.  K.  I.  Ins.  Co., 
44  N.  Y.  276,  283.  See  also  many  of  the  cases  in  this  court  cited 
above.  The  case  of  Dilleber  v.  K.  I.  Ins.  Co.,  supra,  was  a  case  of 
a  life  policy,  where  prompt  payment  had  been  waived  by  the  com- 
pany; and  afterwards,  when  the  insured  offered  to  pay  some  days 
after  the  payment  became  due  by  the  terms  of  the  policy,  the  com- 
pany refused  to  receive  payment,  and  the  insured  shortly  after- 
wards died.  It  held  there  was  no  forfeiture.  The  court  say:  "  It 
may  be  inferred  that  the  company  had  waived  a  strict  compliance 


441-  WAlNEk    AM)    ESTOPPEL. 

\»i  :i  tiieir  written  condition,  and  they  also  aid  in  the  proper  con- 
bi: action  of  the  agreement  of  the  parties  made  in  April,  i860. 
Indeed,  the  conduct  of  both  parties  from  the  time  of  tliat  transac- 
lio  1  seems  to  indicate  that  they  regarded  it  as  a  part  of  the  arrange- 
ment of  insurance,  and  the  insured  was  not  in  fault  in  trusting  to  its 
continuance.  The  company  was  bound  by  it,  and  could  not  in  good 
faith  insist  upon  a  strict  compliance  with  the  condition  of  payment 
until,  before  a  premium  became  due,  they  gave  the  insured  notice 
that  they  should  exact  it.  They  cannot,  when  their  own  interest 
seems  to  demand  it.  waive  a  condition,  and,  after  reliance  upon  it  by 
the  insured,  withdraw  the  waiver  without  notice  "  The  above 
argument  is  strictly  applicable  to  the  case  at  bar,  upon  the  allega- 
tions made  in  the  complaint,  which,  for  the  purposes  of  this  case, 
are  admitted  to  be  true. 


4.   After  Forfeiture. 

OAKES  V.  MANUFACTURERS'   FIRE  AND  MARINE 

INS.  CO. 

135  Mass.  248.  —  1883. 

Holmes,  J. — This  is  an  action  upon  a  policy  of  insurance  con- 
ditioned to  be  void  if  the  property  should  be  "  sold  or  conveyed  in 
whole  or  in  part."  The  plaintiff  subsequently  conveyed  through  a 
third  person  to  his  wife,  and  the  answer  sets  up  the  conveyance  as  a 
breach  of  condition.  It  has  already  been  decided  that  the  condition 
was  broken  by  the  conveyance.  Oakes  v.  Manufacturers  Ins.  Co., 
131  Mass.  164.  But  at  a  second  trial  the  plaintiff  offered  to  prove 
that  he  went  to  the  office  of  the  defendant  company,  and  orally 
notified  it  of  the  conveyance  and  of  a  mortgage,  which  was  made 
before  the  policy  and  was  still  outstanding,  and  requested  the 
defendant  to  cure  the  defect  in  the  policy  caused  by  the  convey- 
ance, and  handed  the  policy  to  the  defendant  for  that  purpose;  and 
that,  at  that  time,  and  upon  said  request,  the  defendant  made  the 
following  indorsement  on  the  policy:  "  Boston,  Aug.  29.  1877. 
Pay  the  within  insurance  of  Si.xteen  Hundred  Dollars  on  House  in 
case  of  loss  to  the  Andover  Savings  Bank.  Chas.  T.  Oakes. 
Assented  to  Aug.  30,  1877.  Jas.  J.  Goodrich,  Secretary.'''  That 
said  policy  was  then  redelivered  by  the  defendant  to  the  plaintiff, 
and  no  return  of  premium,  or  any  portion  thereof,  was  made.  The 
court  excluded  the  evidence,  and  directed  a  verdict  for  the  defend- 
ant. 


WAIVER   AND    ESTOPPEL.  445 

The  plaintiff's  insurable  interest  is  admitted,  and  the  defendant 
supports  this  ruling  and  direction  on  the  single  ground  that  the 
plaintiff's  offer  was  an  attempt  to  modify  and  enlarge  the  effect  of 
the  written  indorsement  by  evidence  of  contemporaneous  oral  deal- 
ings, and  to  import  into  it,  or  establish  alongside  of  it,  a  larger  scope 
or  transaction  than  can  be  gathered  from  its  words.  No  other  ques- 
tion is  raised. 

In  the  opinion  of  the  court,  the  evidence  was  admissible.  To 
begin  at  a  little  distance  from  the  ground  of  the  chief  contention, 
the  highest  authorities  have  declared  that  the  condition  against 
alienation  does  not  take  away  the  defendant's  power  to  waive  a 
breach  and  to  continue  the  insurance  in  force,  and  that  a  new  con- 
sideration is  not  necessary  for  this  purpose.  Titus  v.  Glciis  Falls 
Ins.  Co.,  81  N.  Y.  410,  419."  Wheeler  v.  WatertoK'ii  Ins.  Co.,  131 
Mass.  I,  8;  hisurance  Co.  v.  Norton,  (^dA] .  S.  234.  A  condition  sub- 
sequent can  rarely  be  meant  to  deprive  the  party  for  whose  benefit 
it  is  inserted  of  his  choice  in  this  respect.  Hence  a  contract  which 
is  subject  to  such  a  condition  is  usually  construed  to  provide  by  its 
own  terms  that  it  shall  remain  in  force  after  a  breach,  unless  by 
some  overt  act  the  contractor  shall  manifest  his  election  to  avoid 
it  or  if  by  some  overt  act  he  shall  manifest  his  election  to  afinrm  it, 
as  the  case  may  be.  It  follows  that,  if  he  elects  to  remain  bound, 
he  remains  so  by  force  of  the  original  contract,  and  on  the  original 
consideration. 

It  might  be  said  that  this  reasoning  applies  to  a  condition  subse- 
quent, strictly  so  called,  which  goes  to  the  whole  contract,  and 
which,  if  insisted  on,  avoids  it  ab  initio,  but  that  the  proviso  in  this 
case  only  limits  the  scope  of  the  promise  and  the  extent  of  the  risk 
assumed.  And  then  it  might  be  argued  further,  that  the  scope  of  a 
promise  cannot  be  enlarged  without  a  n^^'N  consideration.  The 
answer  is,  that,  even  taking  it  that  way,  by  the  same  settled  con- 
struction that  reads  "  void  "  as  "  voidable,"  the  limitation  of  the 

'  "  But  it  may  be  asserted  broadly  that  if,  in  any  negotiations  or  transacdons 
with  the  insured,  after  knowledge  of  the  forfeiture,  it  recognizes  the  continued 
validity  of  the  policy,  or  does  acts  based  thereon,  or  requires  the  insured  by 
virtue  thereof  to  do  some  act  or  incur  some  trouble  or  expense,  the  forfeiture  is 
as  matter  of  law  waived;  and  it  is  now  settled  in  this  court,  after  some  differ- 
ence of  opinion,  that  such  a  waiver  need  not  be  based  upon  any  new  agree- 
ment or  an  estoppel.  Allen  et  al.  v,  Vermont  Mut.  Fire  Ins.  Co.,  12  Vt.  366; 
Webster  v.  Phcenix  Ins.  Co.,  36  Wis.  67;  Cans  v.  St.  Paul  Ins.  Co.,  43  Id.  109; 
Insurance  Co.  v.  Norton,  g6  U.  S.  Sup.  Ct.  234.;  Goodwin  v.  Mass.  Alut.  Life  Ins. 
Co.,  73  N.  Y.  4&0,  493:  Prentice  v.  Knickerhocker  Lije  Ins.  Co.,  77  Id.  483;  Brink 
V.  Hanover  Fire  Ins.  Co.,  80  Id.  108."  —  Titus  v.  Gtens  Falls  Ins.  Co.,  81  N.  Y, 
410,  419. 


446  WAIVER   AND    ESTOP I'EL. 

promise  is  itself  conditional,  and  that  the  original  promise  is  to 
insure  throughout  the  term,  in  spite  of  an  alienation,  in  case  the 
insurer  manifests  an  election  to  keep  the  insurance  on  foot. 

Whether  it  be  said  that  the  contract  remains  subject  to  affirmance 
after  an  alienation,  or  that  the  promise  is  alternative  to  insure  up  to 
or  beyond  that  event,  at  the  election  of  the  promisor,  all  that  is 
necessary  to  impose  the  greater  burden  on  the  insurer  is  an  overt 
act  directed  toward  the  insured  and  manifesting  an  election  to 
assume  that  burden.  And  it  is  enough  that  the  act  implies  that  the 
insurance  is  to  continue,  although  its  immediate  purpose  is  some 
further  result. 

Thus,  where,  as  here,  the  thing  set  up  as  manifesting  the  election 
is  a  writing,  the  election  need  not  be  expressed  in  the  words  used. 
The  writing  may  contain  no  reference  to  the  breach  of  condition, 
yet  if  the  undertaking  which  it  does  set  forth  carries  with  it,  as  the 
necessary  premise,  that  the  insurer  was  content  to  remain  bound, 
he  will  remain  bound  as  certainly  as  if  he  had  written  out  that  such 
was  his  intention. 

Of  course,  however,  if  the  act  thus  relied  on  as  an  indirect  election 
be  shown  to  have  been  done  in  ignorance  of  the  breach  of  condition, 
it  will  not  continue  the  insurance  unless  in  the  exceptional  case 
where  the  insurer  has  acted  with  indifference  to  what  the  facts  might 
be,  and  has  assumed  to  act  with  equal  effect  however  they  might 
turn  out.  Parol  evidence  is  therefore  admissible  to  show  that  the 
insurer  knew  of  the  breach  at  the  time  of  the  act  relied  on. 

The  application  of  the  foregoing  principles  to  this  case  is  obvious. 
The  defendant  had  the  power  to  continue  the  insurance  if  it  chose. 
When,  at  the  request  of  the  plaintiff,  it  indorsed  upon  the  policy  its 
consent  to  pay  the  insurance,  in  case  of  loss,  to  the  mortgagee,  it 
did  an  act  which  necessarily  assumed  that  the  contract  remained  in 
force;  for  by  such  an  indorsement  it  necessarily  admitted  and 
affirmed  that,  in  case  of  loss,  money  would  be  due  and  payable  to 
some  one  under  the  contract.  Such  an  affirmation  was  an  overt  act 
of  election  to  continue  the  insurance,  provided  the  act  was  done 
with  knowledge  that  the  condition  had  been  broken.  But  this  indi- 
rect effect  of  the  indorsement  as  an  act  of  election  depended  upon 
the  defendant's  having  such  knowledge.  Hence,  evidence  that  the 
conveyance  had  been  communicated  to  the  company  was  most 
material,  not  as  tending  to  enlarge  the  writing  or  add  a  further 
agreement,  but  as  showing  that  the  condition  attached  by  the  law 
to  the  operation  of  the  indorsement  as  an  act  of  election  had  been 
satisfied. 

Barrett  v.  Union  Ins.  Co..,  7   Cush.  175,  was  cited  on  behalf  of  the 


WAIVER   AND    ESTOPPEL.  447 

defendant.  In  that  case,  a  policy  was  issued  by  a  mutual  company, 
subject  to  a  by-law,  which  formed  part  of  the  contract,  to  the  effect 
that  all  policies  upon  property  previously  insured  should  be  void, 
unless  such  previous  insurance  was  mentioned  in  the  policy  at  the 
time  it  was  issued.  There  was  previous  insurance  not  mentioned  in 
the  policy;  and  it  was  rightly  held  that,  in  an  action  on  the  policy, 
parol  evidence  was  inadmissible  to  show  that  this  had  been  made 
known  to  the  company  and  assented  to  by  it.  The  evidence  would 
have  directly  contradicted  the  written  instrument  declared  on.  The 
policy  in  effect  stipulated  that  its  delivery  should  not  make  a  con- 
tract if  there  was  previous  insurance  not  mentioned.  The  evidence 
went  to  show  that  delivering  the  policy  made  a  contract,  notwith- 
standing such  insurance;  or,  in  other  words,  that  the  condition  pre- 
cedent was  not  insisted  on  at  the  very  moment  when,  by  the  words 
of  the  policy,  it  was  insisted  on.  The  other  cases  cited  do  not 
require  special  notice. 

To  avoid  misapprehension,  it  may  be  well  to  add  that  this  case  is 
not  affected  by  the  clause  providing  that  the  policy  may  continue  for 
the  benefit  of  the  purchaser,  if  the  company  consents,  etc.  The 
plaintiff  claims  in  his  own  name,  under  the  contract  made  with  him, 
which  he  made  voidable  by  his  act,  but  which  he  says  he  can  prove 
the  company  elected  to  affirm.  The  power  of  the  company  to  elect 
in  favor  of  the  contract  is  not  dependent  upon  any  printed  clause, 
but  is  given  to  it  as  legally  incident  to  a  condition  subsequent. 

Exceptions  sustained. 


LANTZ  V.   VERMONT  LIFE  INS.  CO. 

139  Pa.  546.  —  1891. 

Paxson,  C.  J. — This  was  an  action  oi  a  policy  issued  by  the 
defendant  company,  insuring  the  life  of  Simeon  B.  Lantz,  for  the 
benefit  of  his  wife,  Evalina  E.  Lantz,  the  plaintiff  below.  The 
policy  stipulated  that  the  premiums  should  be  paid  quarterly,  on  the 
19th  days  of  February,  May,  August,  and  November  in  each  year; 
that  if  the  said  premiums  should  not  be  paid  on  the  days  named, 
and  in  the  life-time  of  the  assured,  the  policy  should  cease  and 
determine;  that  the  acceptance  of  a  premium  after  maturity  should 
not  be  deemed  or  construed  as  a  waiver,  or  as  any  evidence  of  an 
agreement  to  waive  the  payment  of  any  future  premiums  at  the  time 
the  same  shall,  by  the  terms  of  the  policy,  become  payable,  and 
that  no  person  e.xcept  the  president  and  secretary,  acting  together, 
are  authorized  to  make,  alter,  or  discharge  contracts  or  waive 
forfeitures. 


448  WAIVER   AND    ESTOPPEL. 

Upon  the  trial  below  it  was  among  the  admitted  facts  of  the  case 
that  the  premiums  falling  due  in  May,  August,  and  November,  1887, 
were  not  paid  at  maturity,  but  were  paid  after  maturity,  and  accepted 
by  the  com[)any;  that  the  premium  due  on  February  19,  1888,  was 
not  paid  at  maturity;  that  on  March  2,  1888,  a  brother  of  the 
insured,  who  was  also  a  policy-holder,  called  on  the  general  agent  of 
the  company  in  Philadelphia,  and  informed  the  latter  that  Simeon 
B.  Lantz  would  be  down  on  March  6th  to  pay  his  premium,  and  was 
told  that  he,  the  agent,  did  not  make  out  his  monthly  report  until 
the  loth  of  the  month,  and  that  if  the  premium  was  paid  by  the  9th 
it  would  be  all  right.  So  far  there  is  no  dispute.  But  Mr.  Lantz, 
the  witness,  testified  that  there  was  no  condition  annexed  to  the 
promise  to  receive  the  money,  while  Mr.  Ryer,  the  agent,  testified 
that  he  said  he  would  receive  the  money,  provided  the  insured  was 
in  his  usual  health  at  the  time;  that  he  would  have  to  be  satisfied 
upon  this  point  either  by  a  health  certificate,  or  by  seeing  the 
insured  personally,  and  that  in  the  meantime  the  latter  was  carry- 
ing the  risk  himself.  This  question  of  fact  was  submitted  to  the 
jury,  and  they  have  found  there  was  no  condition  annexed  to  the 
promise.     We-must,  therefore,  treat  the  case  upon  this  basis. 

It  may  simplify  the  discussion  somewhat  to  note  the  following 
admission  of  the  learned  counsel  for  the  company,  to  be  found  on 
page  12,  of  his  paper-book:  "  It  was  admitted  on  the  trial  that  the 
insured  had  paid  three  prior  premiums  after  maturity,  which  had 
been  received  by  the  defendant;  and  also  that  the  manager  was  in 
the  habit  of,  and  practically  had  authority  to,  receive  premiums  and 
deliver  renewal  receipts  after  maturity,  provided  that  the  insured 
was  at  the  time  of  the  payment  in  good  health.  This  was  as  far  as 
the  testimony  went.  There  was  no  evidence  which,  even  the  plam- 
tiff  pretends,  goes  to  show  that  the  agent  had  authority,  or  has  ever 
acted  beyond  this,  or  that  the  company  had  ever  known  of  or 
ratified  such  agreement;  and  it  was  further  admitted  that,  if  Simeon 
B.  Lantz,  the  insured  in  this  case,  had  on  March  9th  been  alive  and 
in  good  health,  and  had  tendered  payment  of  the  premium,  it  would 
have  been  received."  Simeon  B.  Lantz,  the  insured,  was  in  good 
health  on  March  2d,  but  was  taken  ill  on  the  next  day,  and  died  on 
March  6th.  The  above  admission  disposes  of  any  question  as  to 
the  authority  of  the  general  agent  to  receive  overdue  premiums. 

But  we  must  stop  where  the  admission  ends,  unless  a  further  or 
greater  authority  is  to  be  found  in  the  evidence.  In  order  to  estab- 
lish an  authority  to  receive  an  overdue  premium  after  the  death  of 
the  insured,  one  of  two  things  must  be  shown,  viz.:  (a)  An  express 
authority  to  do  so,  conferred  upon  him  by  the  company;  or  (d)  such 


WAIVER   AND    ESTOPPEL.  449 

a  course  of'  dealing  on  the  part  of  the  company,  by  ratifying  or 
recognizing  such  acts  of  the  agent,  as  would  justify  persons  dealing 
with  said  company  in  assuming  that  he  possessed  such  authority. 
There  is  not  a  word  in  the  testimony  to  sustain  either  of  these  prop- 
ositions. All  that  it  shows  was  the  receipt  of  overdue  premiums 
on  three  occasions.  But  the  insured  was  in  full  life  and  health  at 
the  time.  The  case  of  the  plaintiff,  if  sustained  at  all,  must  rest 
upon  the  promise  of  the  agent  to  receive  the  premium  up  to  the  9th 
day  of  March.  This  promise,  as  before  observed,  the  jury  have 
found  to  be  an  unconditional  one.  This  I  understand  to  mean  that 
the  money  would  be  received  as  late  as  the  9th  of  March,  without 
regard  to  the  health  of  the  insured,  or  even  his  death  prior  to  that 
time.      It  remains  to  consider  the  legal  effect  of  such  promise. 

The  first  question  which  logically  suggests  itself  is,  what  was  the 
legal  effect  upon  the  stains  of  the  policy  by  the  default  or  failure  to 
pay  the  premium  due  on  the  19th  of  February  ?  Did  it  continue  to 
bind  the  company  and  protect  the  insured  thereafter?  And,  if  so, 
how  long  did  it  remain  in  force?  Was  it  for  a  week,  a  month,  or  a 
year?  I  know  of  no  instance  in  which  a  policy  was  held  to  be  in 
force  after  such  a  default,  unless  in  pursuance  of  a  contract  made 
between  the  company  and  the  insured  contemporaneous  with  the 
insurance,  or  during  the  life  of  the  policy.  In  Helnie  v.  Insurance 
Co.,  61  Pa.  St.  107,  the  plaintiff  offered  to  prove  "that  it  is  the  cus- 
tom among  insurance  companies  to  receive  premiums  if  tendered  at 
any  time  within  thirty  days  of  the  time  they  fall  due,  provided  the 
insured  is  in  usual  health,  and  that  this  is  the  custom  among  com- 
panies issuing  policies  stipulating  that  non-payments  of  premiums  at 
the  day  shall  be  a  forfeiture."  This  offer  was  rejected  by  the  court 
below,  and  the  rejection  was  held  to  be  error.  Chief  Justice  Thomp- 
son saying:  "  It  might  have  been  a  difficult  thing  to  prove  such  a 
custom,  but  that  was  not  a  good  ground  on  which  to  refuse  the 
offer."  The  grounds  of  this  decision  are  obvious.  While  a  custom 
which  has  grown  into  a  law  may  not  be  heard,  as  a  general  rule,  to 
affect  the  terms  of  a  statute  nor  a  contract  to  the  extent  of  enlarg- 
ing or  abridging  the  force  of  it,  yet  it  may  interpret  either.  Rapp 
v.  Palmer,  3  Watts,  178.  The  chief  justice  gives  a  number  of 
examples  of  the  application  of  this  principle;  among  others,  the 
familiar  instance  of  the  days  of  grace  on  commercial  paper.  By  the 
custom  of  merchants,  so  universal  as  to  ha^^e  grown  into  law,  such 
paper  is  not  due  until  three  days  after  it  purports  to  be  due;  or, 
rather,  the  remedy  is  suspended  during  that  period. 

It  was  not  alleged  that  any  such  custom  existed  in  this  case. 
There  was  not  e\'en  an  offer  to  show  it,  much  less  proof  to  support 

LAW  OF  INSURANCE —  29 


450  WAIVER    AND    ESTUlTEL. 

it.  Did  the  fact  that  the  company  upon  three  prior  occasions 
accepted  the  premium  from  the  insured  after  maturity,  the  insured 
being  in  good  health  at  the  time,  continue  the  policy  in  force  after 
the  default  on  the  i9lh  of  February?  I  know  of  no  authority  for 
such  a  proposition,  and  none  has  been  called  to  our  attention.  It 
was  at  most  a  mere  personal  indulgence,  a  matter  of  grace  on  the 
part  of  the  company,  and  all  that  can  be  claimed  for  it  is  that  it 
may  have  led  the  insured  to  believe  that,  if  he  again  neglected  to 
pay  on  the  day,  the  money  would  be  accepted  if  paid  shortly  there- 
after, provided  no  change  had  occurred  in  his  condition  of  health. 
The  law  upon  this  subject  is  so  clearly  stated  by  Mr.  Justice  Bradley 
in  Thompson  v.  Insurance  Co.,  T04  U.  S.  252,  that  I  need  make  no 
apology  for  quoting  it  at  length:  "  The  last  replication  sets  up  and 
declares  that  it  was  the  usage  and  custom  of  the  defendants,  prac- 
ticed by  them  before  and  after  the  making  of  said  note,  not  to 
demand  punctual  payment  thereof  at  the  day,  but  to  give  days  of 
grace,  to  wit,  for  thirty  days  thereater;  and  they  had  repeatedly  so 
done  with  Thompson  and  others,  which  led  Thompson  to  rely  on 
such  leniency  in  this  case.  This  was  a  mere  matter  of  voluntary 
indulgence  on  the  part  of  the  company,  or,  as  the  plaintiff  himself 
calls  it,  an  act  of  leniency.  It  cannot  be  justly  construed  as  a  per- 
manent waiver  of  the  clause  of  forfeiture,  or  as  implying  any  agree- 
ment to  waive  it,  or  to  continue  the  same  indulgence  for  the  time  to 
come.  As  long  as  the  assured  continued  in  good  health,  it  is  not 
surprising,  and  should  not  be  drawn  to  the  company's  prejudice, 
that  they  were  willing  to  accept  the  premium  after  maturity,  and 
waive  the  forfeiture  which  they  might  have  insisted  upon.  This 
was  for  the  mutual  benefit  of  themselves  and  the  assured,  at  the 
time;  and  in  each  instance  in  which  it  happened  it  had  respect 
only  to  that  particular  instance,  without  involving  any  waiver  of  the 
terms  of  the  contract  in  reference  to  their  future  conduct.  The 
assured  had  no  right,  without  some  agreement  to  that  effect,  to  rest 
on  such  voluntaiy  indulgence  shown  on  one  occasion,  or  on  a  num- 
ber of  occasions,  as  a  ground  for  claiming  it  on  all  occasions.  If  it 
were  otherwise  an  insurance  company  could  never  waive  a  forfeiture 
on  an  occasion  of  a  particular  lapse  without  endangering  its  right  t  > 
enforce  it  on  occasion  of  a  subsequent  lapse.  Such  a  consequence 
would  be  injurious  to  them  and  to  the  public." 

The  consequence  of  a  default  in  the  payment  of  the  premium  is 
defined  in  the  policy  itself.  It  declares  that,  if  not  paid  on  the  days 
named,  and  in  the  lifetime  of  the  insured,  the  policy  should  "  cease 
and  determine."  By  this  I  understand  that  it  is  suspended,  it 
ceases  to  bind  the  company  and  to  protect  the  assured,  and   this- 


WAIVER   AND    ESTOPPEL.  45 1 

without  any  act  or  declaratioa  on  the  part  of  the  former.  It  does 
not  require  a  formal  forfeiture.  This  term  is  often  used,  and,  I 
think,  inaccurately,  in  such  cases.  Nor  is  the  policy  void  in  the  gen- 
eral sense  of  that  term.  It  is  voidable  at  the  election  of  the  com- 
pany, and  that  election  can  be  exercised  without  notice  to  the 
assured,  for  the  reason  that  the  policy  itself  is  notice  that  his  rights 
cease  with  the  non-payment  of  the  premium.  As  to  him  it  is  a  dead 
policy.  It  is  true  it  may  be  restored  to  life  by  the  subsequent  pay- 
ment of  the  premium,  and  its  acceptance  by  the  company.  This, 
however,  is  a  new  contract  by  which  the  company  agrees  in  con- 
sideration of  the  premium  to  continue  in  force  a  policy  which  had 
previously  expired;  in  other  words,  it  is  a  new  assurance,  though 
under  the  former  policy.  Wan^  v.  Blunt,  12  East,  183.  I  do  not 
understand  it  to  be  contended  that,  had  the  assured  died  between 
the  19th  of  February  and  the  2d  of  March,  there  could  have  been  a 
recovery  on  this  policy.  It  seems  almost  a  work  of  supererogation 
to  cite  authorities  for  so  plain  a  proposition,  and  I  will  refer  to  but 
few,  out  of  an  abundance.  In  Insurance  Co.  v.  Rosenberger.,  84  Pa. 
St.  373,  which  was  a  case  of  fire  insurance,  our  Brother  Sterrett, 
after  saying  that  the  default  suspended  the  protection  of  the  policy, 
continued:  "  Upon  the  payment  of  the  assessment  the  policy 
would  have  been  revived  in  its  full  vigor;  but  it  was  never  paid,  or 
even  tendered,  until  after  the  fire,  and  as  delinquent  policy-holders 
they  had  no  right  to  maintain  the  action  without  showing  that  the 
default  was  either  waived  or  excused  by  the  company.  There  is  no 
evidence  of  wai"er,  nor  do  we  think  there  is  any  evidence  to  excuse 
the  default.  There  was  considerable  testimony  showing  that  great 
indulgence  was  extended  to  delinquent  members,  and  that  the  com- 
pany was  accustomed  to  receive  assessments  long  after  they  were 
due;  but  this  is  entirely  consistent  with  the  fact  that,  while  the 
default  continued,  the  protection  of  the  policy  was  suspended."  In 
Insurance  Co.  v.  Rought,  97  Pa.  St.  415,  it  was  said  by  Mr.  Justice 
Mercur:  "It  is  well  settled,  if  a  member  of  a  mutual  insurance 
company  is  in  default  in  the  payment  of  an  assessment  upon  his 
policy,  after  due  notice  according  to  the  by-laws  and  rules  of  the 
company,  the  protecting  power  of  the  policy  is  suspended  until  the 
assessment  is  paid.  No  recovery  can  be  had  for  a  loss  sustained 
during  the  continuance  of  such  default."  Citing  Hummel' s  Appeal, 
78  Pa.  St.  320;  Insurance  Co.  v.  Buckley,  ?)T,  Pa.  St.  293;  Insuratice 
Co.  V.  Rosenherger,  84  Pa.  St.  373;  Insurance  Co.  v.  Cochran,  88  Pa. 
St  230.  It  is  true  these  were  cases  of  fire  insurance  companies,  but 
the  principle  is  equally  applicable  to  a  case  of  life  insurance. 

This  we  think  sufficient  to  show  that  no  recovery  could  have  been 


452  WAIVER   AND    ESTOPPEL. 

had  upon  this  policy  had  the  assured  dieil  between  the  date  of  the 
maturity  of  the  premium  and  the  promise  of  the  agent  to  accept  the 
premium  on  the  9th  of  March.  Regarding  that  as  a  promise  to 
accept  the  premium  even  in  the  case  of  the  previous  death  of  the 
assured,  we  are  led  to  inquire,  in  the  first  place,  what  authority  had 
the  agent  to  make  such  a  promise?  The  condition  of  the  policy  is 
explicit  that  the  premium  must  be  paid  "  in  the  life-time  of  the 
insured."  Had  the  agent  the  authority  to  waive  this  condition? 
The  policy  not  only  declared  that  no  person  except  the  president 
and  secretary,  acting  together,  are  authorized  to  make,  alter,  or 
discharge  contracts,  or  waive  forfeitures,  but  a  notice  to  the  same 
effect  was  printed  on  the  back  of  each  renewal  receipt  given  to  Mr. 
Lantz.  It  was  not  alleged  that  the  president  and  secretary,  acting 
together  or  singly,  had  ever  waived  this  condition  in  the  policy,  or 
that  they,  or  either  of  them,  had  given  authority  to  the  agent  to 
waive  it  in  this  or  any  other  listance.  No  course  of  dealing  was 
shown  on  the  part  of  the  company  by  which  the  grant  of  such 
authority  to  the  agent  could  be  implied.  There  was  not  even  an 
attempt  to  prove  that  the  company  or  its  agent  had  ever  received  an 
overdue  premium  after  the  death  of  the  assured.  There  is  nothing 
within  the  four  corners  of  this  record  to  show  that  the  agent  had 
authority,  express  or  implied,  to  waive  this  condition.  What  right 
had  the  assured  to  suppose,  with  this  condition  in  the  very  front  of 
his  policy,  that  the  agent  would  receive  his  overdue  premium  after 
his  death? 

We  are  not  without  authority  upon  this  point.  The  leading  case 
is  JFani  v.  Blunt^  12  East,  183.  The  following  statement  of  the 
facts  is  condensed  from  the  opinion  of  Lord  Ellenborough.  The 
policy  provided  for  the  payment  of  quarterly  premiums  on  March 
25th,  June  24th,  September  29th,  and  20th  of  December  during  the 
life  of  the  said  W.  W.  Want,  or  within  such  time  after  those  days, 
respectively,  as  is  or  shall  be  allowed  for  that  purpose  by  the  rules 
of  the  said  society.  It  was  provided  by  the  rules  of  the  society  that 
if  any  member  neglected  to  pay  the  quarterly  premiums  for  fifteen 
days  after  the  same  become  due,  the  policy  will  be  void.  This  pro- 
vision was  attached  to  the  policy.  The  quarterly  payments  were  all 
paid  at  maturity  until  the  one  that  came  due  on  December  20th, 
which  was  not  paid,  and  Want  died  on  December  25th;  and  on 
December  27th,  two  days  after  his  death,  but  within  the  fifteen 
days,  his  executors  tendered  the  payment  of  the  premium,  which 
was  refused.  The  court  sustained  the  refusal.  Lord  Ellenborough 
saying,  inter  alia:  "  This  is  a  contract  of  assurance,  and  must  be 
construed  according  to  the  meaning  of  the  parties  as  expressed  in 


WAIVER   AND    ESTOPPEL.  453 

the  deed  or  policy.  *  *  *  I'^e  risk  insured  against  is  his  death, 
and  the  premium  is  a  quarterly  payment,  to  be  made  by  him  to  the 
society  during  his  life.  The  duration  of  the  msurance  is  so  long  as 
he  shall  continue  to  make  those  quarterly  payments;  but  the  insur- 
ance is  not  to  be  void  if  he  pay  the  quarterly  premium  within  such 
time  after  the  quarter  day  as  is  allowed  by  the  rules  of  the  society. 
*  *  *  The  covenant  on  the  defendant  to  pay  the  wife's  annuity 
after  Want's  death  is:  'If  Want  shall  pay,  or  cause  to  be  paid,  the 
quarterly  premium  on  every  quarter  day  during  the  life  of  Want,  or 
within  such  time  after  as  shall  be  allowed  by  the  rules  of  the  society 
for  that  purpose;  '  in  construing  which  sentence,  the  expression, 
'  during  the  life  of  Want,'  must  be  understood  as  applying  to  and 
carried  on  to  the  latter  part  of  the  sentence,  and  is  the  same  as  if 
the  words  '  during  the  life  '  had  been  repeated  after  the  words 
'  within  such  time  after,'  /.  e.,  or  '  within  such  time  after,  during 
the  life.'  *  *  *  Yox  these  reasons  we  are  of  opinion  that  the 
death  of  W.  W.  Want,  which  happened  on  the  25th  of  December, 
was  during  a  period  of  time  not  covered  by  the  policy,  and  that  on 
the  true  construction  of  the  policy  and  rules  of  the  society,  the 
insurance  could  not  be  continued  beyond  the  expiration  of  the  quar- 
ter, which  ended  on  the  20th  of  December,  by  a  tender  of  the  pre- 
mium by  his  executors  after  his  death,  though  within  fifteen  days 
after  the  quarter  day,  so  as  to  include  within  the  policy  the  period 
of  his  death."  la  Simpson  v.  Insurance  Co.,  2  C.  B.  (N.  S.)  257,  the 
words  of  the  policy  were:  "  Provided  he,  the  said  insured,  on  or 
before  *  *  *  pg^y  qj.  cause  to  be  paid  to  the  defendant  the 
annual  premium;  "  and  on  this  point  the  court  said:  "  The  policy 
was  to  continue,  provided  he.  the  insured,  paid  the  premium  within 
the  twenty-one  days;  and  this,  we  think,  did  not  give  the  executors 
the  right  to  pay  it  after  his  death."  To  the  same  point  is  Pritchard 
v.  Society,  3  C.  B.  (N.  S.)  622;  Insurance  Co.  v.  Ruse,  8  Ga.  534. 
The  lule  lai  1  down  in  Want  v.  Blunt.,  supra,  appears  to  have  been 
followed  in  all  subsequent  cases  where  the  same  point  arose.  If 
there  has  been  any  departure  it  has  not  been  called  to  our  attention. 
If,  however,  we  are  wrong  in  this,  if  we  regard  the  condition  in 
the  policy  that  the  premium  must  be  paid  in  the  life-time  of  the 
insured,  as  of  no  effect,  or,  if  effective,  that  it  has  been  waived, 
there  is  another  reason  why  the  company  was  not  bound  to  receive 
the  premium  after  the  death  of  the  assured.  I  have  endeavored  to 
show  that  by  the  failure  to  pay  the  premium,  the  policy  lapsed,  or 
was  suspended,  on  the  19th  of  February.  With  the  policy  in  this 
condition,  the  plaintiff  proved,  as  already  stated,  an  unconditional 
promise  on  the  part  of  the  agent  of  the  company  to  accept  the  pre- 


454  WAIVKR   AND    ESTOTFEL. 

mium  up  to  the  9th  of  March.  I  a  the  ordinary  case  of  the  payment 
of  an  overdue  premium,  as  all  the  authorities  show,  the  policy  does 
not  bind  between  the  default  and  the  payment.  The  plaintiff  claims 
that  this  case  does  not  come  within  the  rule;  that  the  promise 
enlarged  the  time  of  payment,  precisely  as  if  March  9th  had  been 
the  period  stipulated  in  the  policy;  and  that  from  the  time  the 
promise  was  made  until  the  time  it  was  to  be  fulfilled  the  policy 
was  in  full  force.  But  if,  as  I  have  at  least  endeavored  to  show, 
the  policy  did  not  bind  between  the  default  and  the  promise,  what 
occurred  on  the  2d  day  of  March  to  change  the  situation  of  the 
parties  and  restore  this  dead  policy  to  life?  Was  it  the  payment 
of  the  premium  ?  The  premium  was  not  paid.  W x^  it  a  prom- 
ise to  pay  it?  There  was  no  such  promise.  There  was  nothing 
but  the  bare  promise  of  the  agent  to  accept  the  premium  if  paid 
by  the  9th  of  March.  Had  it  been  paid  by  the  assured  prior  to  that 
date,  and  accepted  by  the  company,  the  policy  undoubtedly  would 
have  been  restored  to  life.  This  would  result,  not  by  virtue  of  the 
promise  of  the  agent,  but  from  the  acceptance  of  the  premium  as  a 
consideration  for  the  renewal.  It  would  have  been  a  new  assurance 
under  the  old  policy.  The  mere  promise  of  the  agent,  made  after 
the  default  had  occurred,  to  receive  the  premium  up  to  March  9th, 
was  a  nudum  pactum.  It  was  not  a  contract,  because  there  were  no 
contracting  parties.  The  assured  gave  nothing;  promised  nothing. 
A  lapsed  policy  can  only  be  restored  to  life,  so  far  as  the  assured  is 
concerned,  by  the  actual  payment  and  acceptance  of  the  premium, 
or  a  contract  based  upon  a  sufificient  consideration.  What  consid- 
eration did  the  company  receive  for  carrying  this  risk  from  the  19th 
of  February  until  the  9th  of  March?  Had  the  insured  lived  until 
the  latter  date,  and  then  refused  or  neglected  to  pay  his  premium, 
he  would  have  had  the  benefit  of  an  insurance  on  his  life  during  said 
period  without  paying  a  dollar  of  consideration.  For,  as  before 
stated,  he  did  not  give  anything,  nor  did  he  promise  anything.  It 
was  optional  with  him  to  pay.  The  company  could  not  have 
enforced  it  against  him  had  he  declined.  There  is  no  provision  in 
the  policy  which  covers  such  a  case.  If  the  insured  does  not  pay, 
the  policy  drops,  and  the  contract  relation  ceases. 

Marvin  v.  Insurance  Co.,  85  N.  Y.  282,  is  so  exactly  like  the  case  in 
hand  upon  the  facts  that  a  reference  to  it  will  not  be  out  of  place. 
In  that  case  one  Milton  B.  Marvin  had  a  policy  of  $3,000  on  his  life, 
payable  to  his  wife  in  case  of  his  death.  The  premium  due  on  the 
13th  of  April  was  unpaid.  On  the  27th  of  April,  Hinkle,  the  agent 
of  the  company,  told  the  assured  that  if  he  paid  the  premium  the 
next  morning,    the   28th,  he,  the  agent,    would   receive   the   same. 


WAIVER    AND    ESTOPPEL.  455 

Hinkle  went  to  the  house  of  the  assured  the  next  day,  and  there 
found  him  lying  sick  upon  his  bed,  and,  on  being  offered  the  o\'er- 
due  premium  by  the  assured,  declined  to  receive  it  at  that  time, 
because  the  assured  was  then  sick,  but  told  him  to  keep  the  money, 
and  when  he  got  well,  he,  Hmkle,  would  receive  it,  and  keep  the 
policy  alive.  The  assured  never  did  recover  from  his  sickness,  the 
premium  was  not  paid,  and  the  company  notified  the  assured  that 
it  would  hold  itself  absolved  from  the  contract  by  reason  thereof. 
The  assured  died  in  the  following  September.  Under  this  state  of 
facts  it  was  held  there  could  be  no  recovery  upon  the  policy,  the 
court  below  saying:  "  We  think  the  plaintiff  was  properly  non- 
suited. As  we  understand  the  law  as  laid  down  by  the  court  of  last 
resort  in  such  cases,  in  order  to  a  valid  extension  of  the  time  for 
the  payment  of  a  premium  upon  a  life-policy  after  the  time  of  pay- 
ment has  gone  by,  there  must  be  some  valid  consideration  for  the 
extension  or  waiver  of  the  condition  of  payment,  or  there  must  be 
something  said  by  or  on  behalf  of  the  insurance  company,  while  the 
party  bound  to  make  the  payment  has  still  time  and  opportunity  for 
so  domg,  by  which  the  insured  is  induced  to  believe  the  condition 
is  waived,  or  that  strict  compliance  will  not  be  insisted  on.  This 
introduces  an  element  of  estoppel  in  the  case.  In  such  a  case  it 
would  be  unjust  to  allow  the  insurance  company  to  repudiate  the 
agreement,  and  to  insist  that,  because  of  the  non-payment  of  the 
premium  punctually,  which  omission  had  been  induced  or  counte- 
nanced by  its  own  act,  it  should  be  absolved  from  the  performance 
ot  its  part  of  the  contract."  This  case  was  affirmed  in  the  Court 
of  Errors  and  Appeals  in  an  opinion  by  Finch,  J.,  principally  upon 
the  ground  that,  even  if  Hinkle  was  the  general  agent  of  the  com- 
pany, he  had  no  authority  to  waive  the  condition  as  to  payment, 
the  clause  in  the  policy  containing  a  condition  similar  in  this  respect 
to  that  in  the  policy  in  this  case.  For  this  reason  the  court  did  not 
deem  it  necessary  to  express  an  opinion  upon  the  ground  upon  which 
the  court  below  rested  the  case,  viz.,  the  want  of  consideration  for 
the  promise,  but  said  expressly:  "  It  must  not  be  inferred  that  we 
deem  the  ground  of  the  decision  belov;  incorrect."  This  case  is 
valuable  for  the  further  reason  that  it  shows  very  clearly  the  ground 
of  the  distinction  between  a  promise  to  extend  the  time  of  payment 
made  before  the  time  of  such  payment  and  one  made  after  the 
default.  In  the  former  instance  the  assured  may  have  relied  upon 
the  promise,  and  allowed  the  time  to  slip  by,  whereas,  without  such 
promise,  he  might  have  procured  the  money  and  paid  the  premium. 
Hence  the  cases  hold  that  the  company,  having  misled  the  assured 
to  his  harm,  are  estopped  from  alleging  a  default  because  of  non- 


45^  WAIVER   AND    ESTOPPEL. 

payment  on  the  day.  But  where  a  promise  is  made  after  the  default 
the  assured  has  not  been  misled  or  injured  in  any  manner.  He  has 
allowed  his  policy  to  lapse  by  his  own  neglect.  It  can  only  be 
restored  by  the  consent  of  the  company,  and  he  has  no  reason  to 
suppose  that  if  he  dies  before  the  matter  is  perfected  by  the  pay- 
ment and  acceptance  of  the  premium  the  company  will  pay  as  in  the 
case  of  a  live  policy. 

In  nearly  every  case  cited  to  show  the  authority  of  an  agent  to 
bind  the  company,  by  a  promise  made  after  a  default  to  pay  the 
premium,  the  decision  of  the  court  was  rested  upon  the  ground  of 
estoppel,  a  principle  which  I  do  not  thmk  has  any  application  to  the 
case  in  hand.  In  Dean  ^.Insurance  Co.,  62  N.  Y.  642,  the  agree- 
ment to  extend  the  time  was  not  only  made  before  the  premium 
became  due,  but  the  company  had  actually  received  the  notes  of  the 
assured  for  the  payment  of  three-fourths  of  the  premium.  This  not 
only  introduced  the  element  of  estoppel,  but  the  notes  received 
constituted  a  valid  consideration  for  the  waiver  of  punctual  pay- 
ment. In  Homer  v.  Insurance  Co.,  67  N.  Y.  478,  the  agreement 
extending  the  time  of  payment  was  also  made  before  the  premium 
fell  diie,  and  thus  the  policy-holder  was  prevented  from  paying  the 
premium  on  the  day  it  became  due  by  the  terms  of  the  policy.  In 
Tcnnant  v.  Insurance  Co.,  31  Fed.  Rep.  322,  the  credit  was  extended 
while  the  policy  was  in  full  force.  In  Churchv.  Insurance  Co.,  66  N. 
Y.  222,  the  dealings  were  between  the  assured  and  the  home  office, 
and  no  question  was  involved  as  to  the  authority  of  the  agent.  The 
court  held  there  was  evidence  to  go  to  the  jury  that  a  credit  was 
intended,  inasmuch  as  it  showed  a  prior  dealing  with  the  assured  for 
many  years,  and  that  he  was  in  the  habit  of  getting  policies  without 
paying  for  them  at  the  time.  In  Insurance  Co.  v.  Norton,  96  U.  S. 
234,  there  is  an  expression  by  Mr.  Justice  Bradley  which  indicates 
that  he  did  not  see  any  difference  between  a  promise  to  extend  the 
time  of  the  payment  of  the  premium,  made  before  the  default,  and 
a  promise  made  after  such  default.  In  this  case,  however,  there  was 
not  only  a  promise  made  to  pay,  but  this  was  followed  up  by  an 
actual  tender  of  the  premium,  and  a  refusal  by  the  company  of  such 
tender.  This  presents  an  entirely  different  state  of  facts  from  the 
case  I  am  discussing,  and  Mr.  Justice  Bradley's  remarks  must  be 
taken  in  connection  with  the  particular  facts  to  which  he  was  refer- 
ring. In  Insurance  Co.  v.  E^^^leson,  96  U.  S.  572,  the  question  was 
whether  the  assured  was  excused  for  not  paying  his  premium  at 
maturity.  This  clearly  appears  from  the  concluding  portion  of  the 
opinion  of  Mr.  Justice  Bradley.  It  is  as  follows:  "  The  insured, 
residing  in  the  State  of  Mississippi,  had  ahvays  dealt  with  agents  of 


WAIVER   AND    ESTOPPEL.  45/ 

the  company,  located  either  in  his  own  State,  or  within  some  acces- 
sible distance.  He  had  originally  taken  his  policy  from,  and  had 
paid  his  first  premium  to,  such  agent,  and  the  company  had  always, 
until  the  last  premium  became  due,  given  him  notice  what  agent  to 
pay  to.  This  was  necessary,  because  there  was  no  permanent  agent 
in  his  vicinity.  The  judge  rightly  held  that,  under  these  circum- 
stances, he  had  reasonable  cause  to  rely  on  having  such  notice. 
The  compa-ny  itself  did  not  expect  him  to  pay  at  the  home  ofifice. 
It  had  sent  a  receipt  to  an  agent  located  within  thirty  miles  of  his 
residence;  but  he  had  no  knowledge  of  the  fact,  at  least  such  was 
the'  finding  of  the  jury  from  the  evidence."  Insurance  Co.  v.  Dos- 
ter,  io6  U.  S.  30,  I  Sup.  Ct.  Rep.  iS,  is  somewhat  similar  as  to  its 
facts.  The  assured  was  entitled  to  a  dividend  on  the  business  of 
the  company,  which  was  set  apart  to  the  insured  in  part  discharge 
of  his  premium.  The  company  failed  to  notify  him  of  the  amount, 
and  it  was  the  cause  of  the  delay  in  the  payment.  In  Insurance  Co. 
V.  Block,  109  Pa.  St.  535,  I  Atl.  Rep.  523,  the  premium  had  been 
paid,  and  the  question  was  whether  it  had  been  paid  to  the  proper 
person.  In  Insurance  Co.  v.  Hoover,  113  Pa.  St.  591,  8  Atl.  Rep_ 
163,  which  was  the  case  of  a  payment  of  the  premium  on  a  fire  policy 
after  maturity,  there  was  a  course  of  dealing  by  which  the  agent 
gave  the  assured  a  credit  in  his  accounts,  and  became  himself  the 
debtor  of  the  company  therefor.  This  clearly  appears  from  the 
following  extract  from  the  opinion  of  Mr.  Justice  Sterrett:  "  On 
the  trial,  evidence  was  received  tending  to  show  that  Fredrick, 
through  whom  the  insurance  was  placed,  was  the  recognized  agent 
of  the  company  for  the  purpose  of  securing  risks,  receiving  and 
remitting  premiums,  etc.;  that  in  his  dealings  with  the  company  he 
was  made  its  personal  debtor  for  premiums  on  all  policies  issued 
through  him,  and  that  he  periodically  accounted  to  it  therefor, 
whether  the  money  was  received  by  him  from  the  persons  to  whom 
the  policies  were  issued  or  not;  that  he  made  the  persons  or  firms 
to  whom  he  delivered  policies  his  personal  debtors,  and  dealt  wiih 
them  in  that  relation,  charging  them  with  the  prem.iums  on  his 
books,  sending  them  bills  in  his  own  name,  and  making  himself 
responsible  to  the  company  for  the  same;  and  that  the  bills  for  pre- 
miums were  generally  rendered  some  time  during  the  month  after 
the  insurance  was  effected." 

I  have  not,  of  course,  reviewed  all  the  authorities  cited;  I  have 
considered  the  most  important.  To  review  them  all  would  protract 
this  opinion  to  such  a  length  that  no  one  would  probably  read  it. 
No  Pennsylvania  case  was  cited  which  is  in  serious  conflict  with  the 
views  above  expressed,   nor  have  I   been  able   to  find  one  after  a 


458  WAIVER   AND    KSTOPPEL. 

careful  examination  of  the  digests.  It  is  possible  I  may,  in  the 
press  of  business,  have  overlooked  some  such  case.  We  have  little 
leisure  to  search  for  cases  that  are  not  cited.  But  I  regard  the 
overwhelming  weight  of  authority,  both  in  this  State  and  elsewhere, 
to  be  in  accord  with  the  principles  above  stated;  moreover,  1  believe 
them  to  be  sustained  by  the  sounder  reason. 

L  nder  the  circumstances,  we  think  it  was  error  for  the  learned 
judge  below  to  charge  the  jury  as  follows:  "  Therefore,.!  think  the 
question  arises,  and  it  is  for  you  to  say,  in  this  case,  whether  this 
general  superintendent,  residing  here  in  Philadelphia,  with  his  prin- 
cipal in  Vermont,  and  in  the  constant  habit  of  doing  this  very  thing, 
because  we  find  a  number  of  receipts  where  he  did  receive  the  money 
subsequent  to  the  time  fi.ved,  and  it  is  testified  to  in  this  case  thit 
he  certainly  agreed  to  do  it,  and  had  done  it  in  the  case  of  Mr. 
Lantz,  his  brother,  so  that,  if  the  rule  was  to  be  enforced  as  it  is 
written,  he  would  have  no  right  to  do  this  thing  which  he  was  in 
the  habit  of  doing,  and  that,  therefore,  it  is  a  question  for  you  to 
say  whether  he  had  any  authority;  whether  the  company,  having 
permitted  him  to  do  this  thing  constantly,  had  not  authorized  him 
—  the  secretary  and  president  had  not  authorized  him  —  to  perform 
the  acts  that  he  was  domg."  See  first  assignment.  The  "  thing  " 
which  the  agent  had  done  and  which  the  company  had  ratified  was 
the  acceptance  in  three  instances  of  overdue  premiums  from  the 
assured,  he  being  in  full  life  at  the  time.  Authority  beyond  this 
could  not  be  inferred  from  any  act  of  the  company  or  its  agent.  It 
was  not  denied  —  indeed,  it  was  expressly  admitted  —  that,  had  the 
assured  tendered  the  premium  during  his  life-time,  it  would  have 
been  accepted,  and  the  policy  reinstated.  No  inference  can  be 
properly  drawn  from  this,  however,  that  the  company  would  receive 
the  premium  after  the  death  of  the  assured.  The  learned  judge 
failed  to  note  the  difference  between  the  renewal  of  a  lapsed  policy 
by  the  actual  payment  and  acceptance  of  the  premium  and  a  mere 
attempt  to  renew  it  without  any  consideration  moving  from  the 
assured  to  the  company.  The  one  is  a  completed  transaction,  and 
therefore  binding;  the  other  is  uncompleted,  and  does  not  even 
amount  to  a  contract.  The  same  error  runs  through  the  charge. 
The  assignments  are  all  sustained.  We  think  there  should  have 
been  a  binding  instruction  in  favor  of  the  defendant. 

Judgment  reversed, 

Sterrett  and  Clark,  JJ.,  dissented. 


WAIVER   AND    ESTOPPEL.  459 

5.  What  Constitutes  a  Waiver. 
CENTRAL  CITY  INS.   CO.  v.   GATES. 

86  Ala.  558.  —  1888. 

This  was  an  action  brought  by  W.  J.  Gates  against  the  Central 
City  Insurance  Company,  and  was  founded  on  a  policy  of  insurance 
issued  by  defendant  to  plaintiff  on  a  stock  of  goods  owned  by  him. 
Defendant  pleaded  the  general  issue,  and  by  special  pleas  set  up  the 
defense  that  defendant  had  not  fulfilled  the  conditions  stipulated  in 
the  policy;  had  not  forwarded  to  the  company  sworn  proof  of  loss; 
and  had  not  given  the  company  a  certificate  of  loss  by  a  magistrate. 
Plaintiff  filed  his  replication,  and  setting  up  waiver  of  such  proof 
and  certificate  by  the  company,  after  having  been  given  notice  of 
the  loss,  on  the  ground  that  the  company  had  made  no  objection  to 
the  notice  as  forwarded  to  them,  and  had  not  complained  to  plaintiff 
of  not  having  received  such  proof  and  certificate,  but  that  in  the 
dealings  of  plaintiff  with  the  agents  of  the  company,  and  with  the 
company  itself,  no  objection  was  made-  as  to  plaintiff's  failure  to 
give  such  proof  and  certificate.  Defendant  demurred  to  this  repli- 
cation of  plaintiff,  on  tUe  ground  that  the  facts,  as  set  out,  consti- 
tuted no  waiver  of  the  conditions  of  said  policy.  The  court 
overruled  this  demurrer,  and  defendant  duly  excepted.  Among 
many  charges  requested  by  defendant  was  the  following:  "  That  if 
the  jury  believe  the  evidence  they  must  find  for  the  defendant." 
The  court  refused  to  give  this  charge,  and  defendant  excepted. 
There  was  verdict  and  judgment  for  plaintiff,  and  defendant  appeals. 

SoMERViLLE,  J.  — The  policy  of  insurance  sued  on,  among  other 
conditions,  requires  three  important  steps  to  be  taken  by  the 
assured  in  the  event  of  a  loss  by  fire  (i)  He  must  ''  fort/mnt/i  give 
notice  of  said  loss  to  the  company  in  the  city  of  Selma  ;''  (2)  "  as 
soon  after  as  possible,  [he  must]  render  a  particular  account  of  such 
loss,  signed  and  sworn  to  by  him  "  (the  assured),  stating  the 
origin  of  the  fire,  what  other  insurance  he  has,  if  any,  his  interest 
in  the  property,  its  value,  and  by  whom  and  for  what  purpose  it 
was  occupied;  (3)  "he  must  produce  the  ccrtifcate  oi  the  nearest 
disinterested  magistrate  that  such  officer  has  examined  the  circum- 
stances of  the  loss,  and  believes  that  it  originated  without  fraud,  and 
amounted  to  a  specified  sum."  These  three  requirements,  omitting 
for  the  present  all  mention  of  others,  viz.:  (i)  notice  of  loss;  (2) 
sworn  proof  of  loss;  (3)  certificate  of  loss  by  a  magistrate  — have 
uniformly  been  held  by  the  courts  to  be  conditions  precedent  in 
policies  of  insurance  like  the  present  one,  and  satisfactory  evidence 
of  compliance   with   them,  in   proper  time,  has  been   held  to  be  an 


460  WAIVER   AND    ESTOPPEL. 

essential  prerequisite  to  the  right  of  recovery  by  the  assured,  unless 
such  compliance  is  waived  by  the  insurer.  IVcl/come  v.  Insurance 
Co.,  2  Gray,  480;  May,  Ins.,  §§  460,  466;  Insurance  Co.  \.  Felrath, 
77  Ala.  194. 

"  Forthwith,"  in  all  such  policies,  means  without  unnecessary 
delay,  or  with  reasonable  diligence,  under  the  circumstances  of  the 
particular  case.  Insurance  Co.  v.  Kyle,  11  Mo.  278;  s.  c,  49  Amer. 
Dec.  74. 

It  has  been  held  in  one  case  that  delay  of  eleven  days,  and  in  another 
of  eighteen  days,  in  giving  notice  of  loss,  is  not  a  compliance  with  such 
a  requirement,  in  the  absence  of  excusatory  facts  explaining  the  delay. 
Trask  V.  Insurance  Co.,  29  Pa.  St.  198;  s.  c,  72  Amer.  Dec.  622; 
Edwards  v.  Insurance  Co.,  75  Pa.  St.  380.  Where  the  fire  occurred 
on  the  15th,  and  the  plaintiffs,  hearing  of  it  on  the  i8th,  gave  notice 
by  mail  on  the  23d,  this  was  held  to  be  a  sufficient  compliance  with 
a  condition  requiring  notice  to  be  given  "  forthwith."  Insurance  Co. 
V.  Insurance  Co.,  20  Barb.  468.  And  notice  given  on  the  morning 
after  the  fire  was  held  sufficient  in  Hovey  v.  Insurance  Co.,  2  Duer, 
554.  The  settled  rule  in  all  cases,  however,  is  to  construe  such 
requirements  liberally  in  favor  of  the  assi»red,  and  strictly  against 
the  insurer.  Insurance  Co.  v.  Young,  58  Ala.  476;  Insurance  Co.  v. 
Johnston,  80  Ala.  467,  2  South.   Rep.   125;  s.  c.  60  Amer.  Rep.  112. 

It  has  been  held,  by  this  and  other  courts,  that  where  preliminary 
proofs  of  loss  are  presented  to  the  insurer  in  due  time,  and  they 
are  defective  in  any  particular,  these  defects  may  be  waived  in  either 
of  two  modes:  (i)  By  a  failure  of  the  insurer  to  object  to  them  on 
any  ground  within  a  reasonable  time  after  receipt  —  in  other  words, 
by  undue  length  of  silence  after  presentation;  or  (2)  by  putting 
their  refusal  to  pay  on  any  other  specified  ground  than  such  defect 
of  proof.  The  reason  is  that  fair  dealing  entitles  the  assured  to  be 
apprised  of  such  defect,  so  that  he  may  have  an  opportunity  to 
remedy  it  before  it  is  too  late.  Insurance  Co.  v.  Felrath,  77  Ala. 
194;  Insurance  Co.  v.  Crandall,  t^i  Ala.  9;  Insurance  Co.  v.  McDowell, 
50  111.  120;  s.  c.  99  Amer.  Dec.  497;  Insurance  Co.  v.  Kyle,  49  Amer. 
Dec.  ']\,  supra; Insurance  Co.  \.  Allen,  80  Ala.  571,  i  South.  Rep.  202. 

So,  there  are  cases  decided  by  this  and  other  courts  which  hold, 
and  properly  so,  we  think,  that  an  entire  failure  to  make  any  formal 
proof  of  loss  may  sometimes  be  excused  on  the  principle  of  waiver 
or  estoppel  in  pais.  In  Martin  v.  Insurance  Co.,  20  Pick.  389,  s.  c. 
32  Amer.  Dec.  220;  no  evidence  was  offered  of  any  preliminary 
proofs  before  bringing  the  action,  but  only  of  an  abandonment  not 
accepted,  and  a  demand  of  payment  of  the  loss.  The  insurer  refused 
to  pay  the  loss  solely  on  account  of  the  unseaworthiness  of  the  ves- 


WAIVER   AND    ESTOPPEL.  461 

sel,  and  in'all  their  communications  with  the  plaintiff  made  no  objec- 
tion to  the  want  of  proof.  The  court  held  that  the  refusal  to  pay  on 
theground  specified  was  a  fact  from  which  the  jury  were  authorized 
to  infer  a  waiver  of  the  proof  of  loss.  On  like  principle,  a  waiver 
of  preliminary  proofs  has  been  inferred  from  a  distinct  refusal  of  the 
company  to  pay  because  the  assured  had  taken  other  insurance  with- 
out notice,  and  "  had  in  other  ways  acted  unfairly."  Insurance  Co. 
V.  Neve,  2  McMul.  (s.  c.)  237.  And  again,  on  the  ground  that  no 
valid  contract  of  insurance  had  ever  been  entered  into  because  incom- 
plete at  the  time  of  the  loss,  no  objection  being  made  to  the  want 
of  such  proofs  Tayloe  v.  Insurance  Co.,  9  How.  (U.  S.)  390;  Insur- 
ance Co.  V.  Adlcr,  71  Ala.  518.  So,  where  the  insurance  company 
subjected  the  assured  to  a  personal  examination  under  oath,  which 
statement  he  subscribed  as  required  by  the  terms  of  the  policy,  and 
no  demand  was  made  for  formal  proofs,  it  was  held  that,  upon  this 
state  of  facts,  the  jury  were  authorized  to  find  a  waiver  of  such 
proofs.  Badger  v.  Insurance  Co.,  49  Wis.  40a.  The  payment  by  the 
insurer  of  a  part  of  the  sum  agreed  to  be  paid  by  the  policy  in  case 
of  loss  has  also  been  held  a  waiver  of  the  usual  preliminary  proofs. 
IVesilake  v.  Insurance  Co.,  14  Barb.  206.  So,  the  offer  tJ  pay  a  speci- 
fied sum,  accompanied  by  a  denial  of  liability  for  some  of  the  articles 
as  not  covered  by  the  policy,  without  demand  of  such  proofs. 
Insurance  Co.  v.  Alien,  80  Ala.  571,  i  South.  Rep.  202. 

We  can  find  no  case,  however,  where  the  mere  silence  of  the 
insurer  has  been  construed  as  a  waiver  of  the  presentation  of  pre- 
liminary proofs  by  the  insured,  where  no  such  proofs,  defective  or 
otherwise,  have  been  presented.  The  policy  itself  is  the  most 
solemn  notification  possible  of  the  imperative  prerequisite  of  fur- 
nishing such  proofs.  It  is  there  stipulated  that  they  must  be  fur- 
nished as  soon  as  possible  after  the  fire,  and  this  stipulation  is  a 
standing  notice  of  the  requirement.  It  stands  to  reason  that  this 
notice  need  not  be  reiterated  by  the  insurer,  nor  any  special  atten- 
tion of  the  assured  called  to  it,  unless  the  particular  circumstances 
of  the  case  render  it  necessary  to  fair  and  honest  dealing  between 
the  parties.  And  the  authorities  accordingly  hold  that  the  mere 
silence  of  the  underwriter  or  insurer,  or  his  failure  to  specify  the 
non-production  of  such  preliminary  proofs,  as  an  objection  to  the 
payment  of  the  loss,  is  not  sufficient  evidence  to  justify  a  jury  in 
inferring  a  waiver  of  the  production.  Insurance  Co.  v.  Lawrence,  2  Pet. 
{U.  S.)  25;  O'Reilly  v.  Insurance  Co.,  60  N.  Y.  169;  Keeuan  v.  Insur- 
ance Co.,  12  Iowa,  126.  A  like  principle  was  applied  in  Insurance  Co. 
y.Kyle,  II  Mo.  278,5.  c.  49  Amer.  Dec.  74,  where  thtre  was  a  fail- 
ure on  the  part  of  the  insurer  to  object  to  a  notice  of  loss  when  it 


462  WAIVER   AND    ESTOPPEL. 

was  received  too  late.  It  was  suggested  by  the  court  that  it  was  not 
the  duty  of  the  company  to  make  any  formal  objection  to  the  want 
of  notice,  and  whether  they  were  silent,  or  made  objections  on  this 
ground,  could  not  alter  the  rights  of  the  parties.  "  S ach  a  doctrine 
would  be  in  fact,"  it  was  said,  "  implying  a  new  contract  between 
the  parties  from  the  mere  inaction  or  silence  of  one  party."  See 
also  Patrick  v.  Insurance  Co  ,  43  N.  H.  621 ;  s.  c.  80  Amer.  Dec.  197. 

As  we  have  said,  the  contract  exacts  (i)  a  notice  of  loss  forth- 
with, and  (2)  proofs  of  loss  as  soon  thereafter  as  possible.  It  is 
manifest  that  mere  notice  of  loss  is  noi  proof  oi  such  loss,  and  can- 
not ortlinarily  subserve  such  purpose;  although  proof  of  loss,  if  made 
"  forthwith,"  may  answer,  not  only  as  proof,  but  as  notice.  Wood, 
Ins.,  §  42S;  May,  Ins.,  §  460.  It  has  been  accordingly  held,  in 
rc^cognition  of  this  distinction,  that  there  might  be  a  waiver  of  the 
notice  of  loss,  without  a  waiver  of  the  proof  of  loss  required  to  be 
furnished.      Desilver  v.  Insurance  Co.,  38  Pa.  St.  130. 

In  this  case  there  was  notice  of  loss,  but  the  company  received  no 
preliminary  proofs.  The  policy  required  that  such  proofs  should 
be  rendered  to  the  company,  meaning  from  the  context,  in  the  city 
of  Selma,  where  the  notice  also  was  required  to  be  given.  The 
deposit  in  the  post-ofifice  of  a  written  statement  of  loss,  made  out 
and  sworn  to,  and  addressed  to  the  company  at  Selma,  but  never 
received  by  them,  was  not  a  delivery  of  such  proof  to  them,  and 
could  not  operate  to  fulfill  the  requirement  of  the  contract  that  such 
proofs  of  loss  should  be  rendered  to  the  company  at  Selma.  Hodg- 
kins  V.  Insurance  Co.,  34  Barb.  213. 

Waiver  is  necessarily  a  matter  of  mutual  intention  between  the 
contracting  parties  in  the  nature  of  a  new  contract  between  them. 
In  the  absence  of  evidence  that  the  company  had  ever  received  any 
proofs  of  loss,  or  knew  their  contents  and  defects,  if  any,  it  cannot 
be  contended  that  such  defects  were  waived.  There  can  be  no 
waiver  of  anything  as  to  the  e.\istence  of  which  one  is  totally 
ignorant.     Bennecke  s.  Insurance  Co.,  105  U.  S.  355. 

In  Daiues  v.  Insurance  Co.,  7  Cow,  462,  it  was  held  that  the  presi- 
dent of  an  insurance  company,  as  such,  possessed  no  power  to  waive 
full  preliminary  proofs.  \(\  Insurance  Co.  v.  Young,  86  Ala.  424,  5 
South.  Rep.  116,  it  was  decided  that  a  local  soliciting  agent  has  no 
authority,  after  loss,  to  waive  the  breach  of  any  condition  in  a  fire 
insurance  policy.  And  Patrick  v.  Insurance  Co.,  43  N.  H.  641, 
s.  c.  80  Amer.  Dec.  197,  is  authority  for  the  proposition  that  a  con- 
dition in  a  policy  of  insurance,  requiring  notice  of  loss  to  be  given 
within  thirty  days,  is  not  waived  by  a  vote  of  the  directors  of  the 
company  to  indefinitely  postpone  the  consideration  of  the  loss,  which 


WAIVER   AND    ESTOPPEL.  463 

was  tantamount  to  a  refusal  to  pay  anything  on  account  of  it,  the 
notice  not  having  been  given  in  due  time.  The  jury  were  probably 
justified  in  coming  to  the  conclusion  that  the  notice  of  loss,  under  all 
tne  circumstances  of  the  case,  was  given  in  a  reasonable  time,  and 
in  proper  mode.  But  there  were  no  proofs  of  loss  furnished,  and  no 
conduct  on  the  company's  part  from  which  the  jury  were  authorized 
to  infer  a  waiver  of  such  proof. 

Under  a  proper  application  of  the  foregoing  principles,  it  is  our 
opinion  that  the  defendant's  demurrer  to  the  plaintiff's  replication 
should  have  been  sustained,  and  that  the  defendant  was  entitled  to 
have  the  general  affirmative  charge  given  as  requested. 

Reversed  and  remanded.' 


ROBINSON  V.   PENNSYLVANIA  FIRE  INS.  CO. 

90  Me.  385.  —  1897. 

WiswELL,  J.  —  *  *  *  As  to  the  second  point  raised,  we  quote 
from  the  bill  of  exceptions:  "  The  plaintiff  did  not  within  a  reason- 
able time  aft  r  her  loss  deliver  to  the  defendant  an  account  of  the 
loss  and  damage,  as  required  by  section  21  of  chapter  49  of  the 
Revised  Statutes,  but  claimed  that  the  defendant,  by  its  agents,  had 
waived  the  delivery  of  such  proof  of  loss.  There  was  evidence 
tending  to  prove  that,  when  the  defendant's  agents  were  notified  of 
the  loss,  they  denied  that  the  defendant  was  liable  for  such  loss  on 
the  policy  in  suit,  for  the  reason  that  the  policy  did  not  cover  the 
goods  and  chattels,  in  said  new  building,  destroyed  by  fire.  The 
plaintiff  contended  that  such  denial  was  a  waiver  of  the  proof  of 
loss  required  by  the  statute,  while  it  was  contended  by  the  defend- 
ant that  such  denial  of  the  plaintiff's  claim  was  not  such  a  waiver." 

Upon  the  question  of  waiver  the  presiding  justice  instructed  the 
jury  as  follows:  "  So,  gentlemen,  you  will  determine  whether  or 
not,  from  the  beginning,  the  defendant  has  denied  its  liability  under 
this  policy  because  they  claim  it  did  not  cover  this  property;  and,  if 
it  has,  then,  gentlemen,  they  have  waived  any  proof  on  the  part  of 
the  plaintiff,  and,  as  I  have  said  to  you,  she  may  recover,  provided 
she  satisfies  you  that  the  policy  covered  the  property  consumed  by 
reason  of  its  being  in  the  building  that  was  mentioned  in  the  policy." 
We  think  that  this  instruction  was  erroneous.  Ordinarily  the  ques- 
tion as  to  whether  or  not  there  has  been  a  waiver  is  one  of  fact  for 

'  See  also  point  "  3  "  of  the  opinion  in  £r?netitrout  v.  Co.,  reported  herein  at 
p.  487. 


464  WAIVER   AND    ESTOPPEL. 

the  jury.  "It  is  always  so  whenever  it  is  to  be  inferred  from  evi- 
dence adduced,  or  is  to  be  established  from  the  weight  of  evidence." 
A'^iikerson  v.  iVickerson,  80  Me.  100,  12  Atl.  880,  It  was  a  (juestion 
of  fact  in  this  case.  There  was  no  express  waiver.  It  was  there- 
fore for  the  jury  to  determine  whether,  from  the  acts  relied  upon 
and  proved,  the  inference  could  be  properly  drawn  either  that  there 
was  an  intention  upon  the  part  of  the  insurer  to  waive  its  right  to 
have  a  proof  of  loss  furnished  by  the  insured,  or  that  the  denial  of 
liability,  for  another  cause,  was  of  such  a  character,  or  made  under 
such  circumstances,  as  to  reasonably  induce  a  belief  upon  the  part 
of  the  assured  that  the  furnishing  of  a  proof  of  loss  would  be  a  use- 
less formality,  and  that  in  relying  upon  the  belief  thus  induced  she 
neglected  to  make  the  required  proof  of  loss  within  a  reasonable 
time.  When  there  is  no  express  waiver,  it  is  not  only  necessary  for 
the  jury  to  determine  what  the  facts  are  which  are  relied  upon  for 
the  purpose  of  showing  a  waiver,  but  it  is  also  the  peculiar  and 
appropriate  province  of  the  jury  to  determine  what  inferences  are 
properly  deducible  from  such  facts. 

That  the  question  whether  or  not  there  has  been  a  waiver,  where 
it  is  a  matter  of  inference,  is  one  of  fact  for  the  determination  of 
the  jury,  is  generally,  if  not  universally,  held  by  the  courts  of  this 
country.  It  was  early  so  decided  in  this  State  in  the  case  of  Manu- 
facturing Co.  v.  Armstrongs  17  Me.  34,  in  which  it  was  held,  "Whether 
there  was  or  was  not  such  a  waiver  is  for  the  decision  of  the  jury, 
and  the  presiding  judge  cannot  order  a  nonsuit,  even  if  the  court 
should  be  of  opinion  that  the  evidence  of  waiver  would  not  warrant 
a  verdict."  This  case  was  cited  and  approved  in  N'lckerso/i  v. 
Nickerson,  supra.  In  Smith  v.  Insurance  Co..,  87  Me.  190,  32  Atl.  872, 
the  plaintiff's  counsel  requested  the  presiding  judge  to  rule  as  a 
matter  of  law  that  the  defe.ndant  had  waived  their  right  to  arbitration. 
The  court  declined  to  do  this,  but,  explaining  what  might  constitute 
a  waiver,  it  submitted  the  question  to  the  jury  to  determine  for 
themselves.  The  ruling  was  sustained,  although  there  was  no  dis- 
cussion of  the  question  as  to  whether  this  was  within  the  province 
of  court  or  jury.  In  Fitch  \.Iron  Works,  29  Conn.  91,  it  was  held 
that  this  was  a  question  for  the  jury,  "  because  a  question  of  waiver 
is  one  of  intention,  and  most  usually  depends  on  acts  or  declarations 
which,  in  regard  to  their  character,  are  of  an  inconclusive  or  doubt- 
ful nature,  and  furnishes  only  evidence  of  intention  and  grounds  of 
inference  and  deduction  which  it  is  the  appropriate  province  of  trie 
jury  only  to  consider."  In  Fox  v.  Harding.,  7  Cush.  516,  it  is  said: 
"  It  may  be  laid  down  as  a  general  rule  that  the  question  whether 
the  evidence  in  any  case  establishes  a  waiver  of  any  legal  right  by 


WAIVER   AND    ESTOPPEL.  465 

a  party  is  one  of  fact,  to  be  settled  by  the  verdict  of  a  jury.  *  *  * 
In  ail  questions  of  ttiis  sort  so  much  depends  on  the  intent  with 
which  parties  act  that  it  would  be  impossible  for  courts  to  establish 
any  certain  rule  by  which  all  cases  could  be  governed.  They  must 
necessarily  be  left  to  the  determination  of  juries,  whose  peculiar 
province  it  is  to  ascertain  the  intent  of  parties  as  gathered  from  the 
various  facts  and  circumstances  proved  in  each  particular  case." 
In  Railroad  Co.  ''.  Paige,  135  Mass.  145,  it  is  said:  "  Taking  the 
view  most  favorable  to  the  defendant,  it  was  a  question  of  fact, 
upon  the  evidence,  whether  he  had  not  thus  waived  his  rights  upon 
which  the  plaintiff  would,  in  a  jury  trial,  have  the  right  to  go  to  the 
jury.  The  ruling,  therefore,  that  as  matter  of  law  the  defendant 
was  entitled,  upon  the  evidence,  to  recover  under  his  declaration  in 
set-off,  without  passing  upon  this  disputed  question  of  fact,  was 
error."  Numerous  other  cases  to  the  same  effect  might  be  cited, 
but  it  is  unnecessary. 

Nor,  in  our  opinion,  was  the  instruction  complained  of  a  strictly 
correct  statement  of  the  law.  It  was  too  broad  and  unqualified. 
The  mere  denial  by  the  company  of  its  liability,  because  of  the  claim 
that  the  property  destroyed  was  not  covered  by  the  policy,  was  not, 
m  and  of  itself,  a  waiver.  It  would  be  evidence  from  \vhich  a  jury, 
in  connection  with  all  the  other  facts  and  circumstances,  might  draw 
the  inference  that  a  waiver  was  intended;  or  it  might  have  the  effect 
of  a  waiver,  under  certain  circumstances,  upon  the  doctrme  of 
estoppel.  A  waiver  is  the  intentional  relinquishment  of  a  known 
right.  And  even  where  a  waiver  is  not  intended,  the  language,  con- 
duct, or  even  the  silence  of  one  party  to  a  contract  may  be  of  such 
a  character  and  under  such  circumstances  as  to  induce  the  other 
party  to  believe  that  a  waiver  was  intended;  and  if,  acting  upon  this 
belief,  he  fails  to  perform  a  required  condition,  then  the  party  whose 
conduct  caused  the  belief  will  be  estopped  from  taking  any  advan- 
tage thus  obtained.  Upon  the  same  principle  it  has  very  generally 
been  held  that  if  an  insurance  company  denies  its  liability  upon  other 
ground,  and  thereby  causes  the  insured  to  believe  that  a  compliance 
with  the  condition  to  furnish  proofs  of  loss  would  be  unavailing  and 
but  a  useless  formality,  and  he  for  that  reason  neglects  to  comply 
with  such  condition,  it  will  be  considered  as  equivalent  to  a  waiver. 

It  is  true  that  many  decided  cases  contain  statements  to  the  effect 
that  a  general  denial  by  an  insurance  company  of  all  liability  waives 
notice  and  proof  of  loss,  but  an  examination  of  these  cases  will  show 
that  they  very  generally  rest  upon  the  essential  principles  of  estoppel. 
And  while  this  is  not  universally  true,  and  although  some  courts 
assert   that  this  rule  is  independent  of,  or  at  least  not  necessarily 

LAW  OF  INSURANCE  —    30 


466  WAIVER    AND    ESTOPPEL. 

based  upon,  the  doctrine  of  estoppel,  we  think  that  upon  principle 
there  can  be  no  waiver  unless  one  was  intended,  or  unless  the  cir- 
cumstances create  an  estoppel.  In  Welsh  v.  Corporation,  151  Pa.  St. 
607,  25  Atl.  142,  it  was  decided  that  when  the  insured,  in  good 
faith  and  within  the  stipulated  time,  does  what  he  plainly  intends  as 
a  compliance  with  the  requirements  of  his  policy  as  to  proofs  of  loss, 
good  faith  equally  requires  that  the  company  shall  notify  him 
promptly  of  any  objections  thereto,  so  as  to  give  him  an  opportunity 
to  obviate  them,  and  that  mere  silence  may  so  mislead  him,  to  his 
disadvantage,  to  suppose  the  company  satisfied,  as  to  be  of  itself 
sufficient  evidence  of  waiver  by  estoppel.  In  the  opinion  in  that 
case  it  is  said:  "  The  plaintiff's  fifth  point,  however,  that  if  the 
authorized  agent  of  the  defendant  refused  payment  of  the  loss,  giv- 
ing a  specified  reason  therefor  to  the  plaintiff,  they  must  be  confined 
to  that  reason  upon  the  trial,  and  the  jury  should  disregard  any 
other  defense  now  made  by  them,  was  entirely  too  broad,  and  its 
affirmance,  as  a  general  proposition  of  law,  would  be  clear  error. 
It  ignores  the  elements  of  estoppel,  and  lays  down  a  rule  without 
reference  to  conditions  essential  to  its  existence  and  applicability." 
And  later  in  the  same  opinion,  in  speaking  of  certain  cases  in  that 
state,  it  is  said:  "  All  of  these  cases  rest  upon  the  substantial  ele- 
ment of  estoppel,  that  the  defendant,  having  led  the  plaintiff  to 
suppose  that  a  compliance  >vith  the  preliminary  formalities  would  be 
unavailing,  could  not  thereafter  set  up  the  want  of  such  prelimin- 
aries. Of  the  soundness  of  that  principle  there  can  be  no  question." 
In  Insurance  Co.  v.  Eggleston,  96  U.  S.  572,  Mr.  Justice  Bradlev,  in 
delivering  the  opinion  of  the  court,  said:  "  Any  course  of  action  on 
the  part  of  an  insurance  company  which  leads  a  party  insured  hon- 
estly to  believe  that  by  conforming  thereto  a  forfeiture  of  his  policy 
will  not  be  incurred,  followed  by  due  conformity  on  his  part,  will 
and  ought  to  estop  the  company  from  insisting  upon  the  forfeiture, 
though  it  might  be  claimed  under  the  express  letter  of  the  contract." 
In  Insurance  Co^  v.  Potts,  55  N.  J.  Law,  158,  26  Atl.  27,  537,  the 
court  adopts  the  language  of  Mr.  Justice  Bradley  above  quoted. 
In  this  case  the  insured  procured  additional  insurance  without  the 
written  consent  of  the  insurer,  as  required  by  the  policy.  He  noti- 
fied the  company,  and  the  company  directed  its  agents  to  cancel  the 
policy,  which  they  failed  to  do  until  after  the  loss.  It  was  held 
that  the  insurer  was  estopped  from  setting  up  a  forfeiture,  the  court 
saying  in  its  opinion:  "  The  case  thus  presented  would,  in  my  opin- 
ion, come  within  the  elemental  rule  of  estoppel,  that  in  dealing  with 
others  no  one  shall  be  permitted  to  deny  that  he  intended  the  natural 
consequences  of  his  conduct,  when  such  conduct  has  in  fact  induced 


WAIVER   AND    ESTOPPEL.  467 

Others  to  rely  upon  it  to  their  loss."  "  In  cases  like  the  present 
it  must  appear  that  the  insured  was  misled  to  his  prejudice;  and, 
where  no  act  has  been  done  or  left  undone  by  the  insured  in  reliance 
on  the  act  or  nonaction  of  the  insurer,  there  can  be  no  estoppel. 
The  acts  or  declarations  must  have  influenced  the  conduct  of  the 
other  party  to  his  injury."  Wheaton  v.  Insurance  Co.,  76  Cal.  415, 
18  Pac.  758  In  Butterworth  n.  Insurance  Co.,  132  Mass.  489,  the 
principle  of  estoppel  is  recognized  in  this  language:  "  No  objection 
is  here  made  to  the  proofs,  but,  on  the  contrary,  they  are  by  impli- 
cation recognized  as  satisfactory.  It  is  against  good  faith  for  the 
defendant,  after  thus  having  lulled  the  plaintiffs  into  a  feeling  of 
security,  to  object  at  the  trial  that  the  proofs  were  not  sufficient; 
and  the  jury  were  justified  in  finding,  if  not  required  to  find,  a 
waiver  by  the  defendant." 

The  decisions  of  the  New  York  court  have  been  somewhat  con- 
iiicting  upon  this  question,  but  in  Devens  v.  Insurance  Co.,  83  N.  Y 
168,  the  Court  of  Appeals  distinctly  recognizes  this  doctrine  in  the 
following  language:  "  The  doctrine  of  .waiver  was,  we  think,  prop- 
erly applied  in  that  case  but  it  should  not  be  extended  so  as  to 
deprive  a  party  of  his  defense  merely  because  he  negligently  or 
incautiously,  when  a  claim  is  first  presented,  while  denying  his  lia- 
bility, omits  to  disclose  the  ground  of  his  defense,  or  states  another 
ground  than  that  upon  which  he  finally  relies  There  must,  in 
addition,  be  evidence  from  which  the  jury  would  be  justified  in  find- 
ing that  with  full  knowledge  of  the  facts  there  was  an  intention  to 
abandon,  or  not  to  insist  upon,  the  particular  defense  afterwards  relied 
upon,  or  that  it  was  purposely  concealed  under  circumstances  calcu- 
lated to,  and  which  actually  did,  mislead  the  other  party  to  his  injury." 

The  doctrine  is  thus  stated  in  Bigelow,  Estop.,  p.  660:  "  Frequent 
illustrations  of  the  estoppel  in  question  are  to  be  found  in  cases  of 
actions  upon  insurance  policies,  where  the  conduct  of  the  under- 
writer has  been  such  as  reasonably  to  lead  the  assured  to  believe, 
until  too  late,  that  a  requirement  of  the  policy,  as,  e.  g.,  in  regard 
to  the  proofs  of  loss  or  the  prompt  payment  of  the  premium  or  of  a 
premium  note,  will  not  be  required.  If  the  assured,  as  a  sensible 
man,  has  really  been  misled,  it  would  be  a  fraud  upon  him  to  insist 
upon  the  term  or  condition  forborne."  And  on  page  664  the  same 
author  says:  "  The  question  to  be  considered  in  such  cases,  it  will 
be  seen,  is  whether  the  conduct  of  the  one  party  had  had  a  natural 
tendency  to  prevent  the  other  from  doing  what  he  has  undertaken  to 
do,  and  has  not  done." 

For  the  reasons  given,  and  upon  the  authority  of  the  cases  cited, 
this  exception  must  be  sustained. 

Exceptions  sustained. 


PART  VIII. 
Insurance  Agents. 


a.  Scope  of  Authority. 

I.   Local  Agents. 

MILLVILLE  MUTUAL  MARLNE  AND  FIRE  INS.   CO.  v. 
MECHANICS',  ETC.,  ASSOC. 

43  N.  J.  L.  652.—  1881. 

Van  Syckel,  J. — The  plaintiff  held  the  policy  of  insurance  in 
this  ease  as  collateral  security  for  a  nriortgage  debt,  and  instituted 
this  suit  to  recover  loss  by  fire.  The  property  was  insured  in  the 
name  of  George  H.  Stinson,  the  then  owner.  After  the  assignment 
of  the  policy  to  the  plaintiff,  Stinson  decided  to  convey  the  prop- 
erty to  his  wife,  and  to  effect  his  purpose  made  a  conveyance  of  the 
premises  to  Winslow  Beynor,  who  thereupon  conveyed  to  the  wife. 
The  defense  is  that  this  conveyance  was  made  without  the  consent 
or  approval  of  the  defendant  company,  and  without  any  assignment 
of  the  policy  approved  and  consented  to  by  the  defendant  within 
thirtv  days  after  the  alienation,  or  at  any  time.  It  is  conceded  that 
by  the  express  terms  of  the  policy  a  change  in  the  title  of  the 
insured  premises,  without  the  consent  of  the  insurer,  makes  the 
policy  void. 

The  question  in  the  case  is,  whether  notice  of  alienation  was 
given  to  the  company,  and  whether  they  assented  to  it  or  waived 
the  condition  of  the  policy  in  this  respect.  The  case  turns  upon 
the  authority  with  which  the  company's  agent  shall  be  held  to  be 
invested.  A  special  agency  strictly  exists  where  authority  is  given 
to  do  a  single  act  or  designated  specific  acts.  A  general  agency 
arises  where  there  is  a  grant  of  power  to  do  all  acts  connected  with 
a  particular  branch  of  business,  or  a  general  authority  in  regard  to  a 
particular  transaction.  A  general  authority  may  arise  from  a  gen- 
eral employment  in  a  specific  capacity.  The  rule  is  well  stated  in 
Story  on  Agency,  §  19,  thus:   "  On  the  other  hand  (although  this  is 

[468J 


INSURANCE   AGENTS.  469 

not  the  ordinary  commercial  sense),  a  person  is  sometimes  said  to 
be  a  special  agent,  whose  authority,  although  it  extends  to  do  acts 
generally  in  a  particular  business  or  employment,  is  yet  qualified 
and  restrained  by  limitations,  conditions  and  instructions  of  a 
special  nature.  In  such  a  case  the  agent  is  deemed,  as  to  persons 
dealing  with  him  in  ignorance  of  such  special  limitations,  to  be  a 
general  agent;  although  as  between  himself  and  his  principal,  he 
may  be  deemed  a  special  agent.  In  short,  the  true  distinction  (as 
generally  recognized)  between  a  general  and  special  agent  (or,  as 
he  is  sometimes  called,  a  particular  agent),  is  this:  A  general  agency 
does  not  import  an  unqualified  authority,  but  that  which  is  derived 
from  a  multitude  of  instances,  or  in  the  general  course  of  an  employ- 
ment or  busmess;  whereas,  a  special  agency  is  confined  to  an  indi- 
vidual transaction."  Such  general  authority  enables  the  agent  to 
bind  the  principal,  without  orders,  in  dealing  with  those  who,  acting 
in  good  faith,  have  no  notice  of  the  want  of  lawful  power  in  the 
agent. 

One  who  intrusts  authority  to  another  is  bound  by  all  that  is 
done  by  the  agent  within  the  scope  of  his  apparent  power,  and  can- 
not screen  himself  from  the  consequences  thereof  upon  the  ground 
that  no  authority  was  given  to  do  the  particular  act.  If  a  person 
is  in  fact,  or  apparently,  a  general  agent  of  the  company,  he  stands 
in  the  place  of  the  company  to  the  assured,  and  in  the  absence  of 
any  limitation  of  his  power  made  known  to  the  assured,  any  act  done 
by  him  within  the  apparent  range  of  his  employment,  before  or  after 
the  contract  is  entered  into,  is  binding  on  the  principal.  Mr.  Wood, 
in  his  work  on  Fire  Insurance,  §  392,  forcibly  remarks:  "  It  would  be 
disastrous  to  commercial,  as  well  as  other  interests,  if  a  person, 
by  acting  through  the  agency  of  another,  could  shield  himself  from 
liability  for  such  person's  acts,  ad  libitum.  Fortunately  no  such 
rule  exists,  and  he  who  intrusts  authority  to  another,  in  whatever 
department  of  business,  is  bound  by  all  that  is  done  by  his  agent 
within  the  scope  of  his  apparent  power,  and  cannot  screen  himself 
from  the  consequences  thereof  upon  the  ground  that  no  authority, 
in  fact,  was  given  him  to  do  the  particular  act,  unless  the  act  was 
clearly  in  excess  of  his  apparent  authority,  or  was  done  under  such 
circumstances  as  put  the  person  dealing  with  him  upon  inquiry 
as  to  the  agent's  real  authority."  The  diversity  in  the  cases,  which 
it  will  be  futile  to  attempt  to  reconcile,  arises  not  in  the  compre- 
hension of  what  is  the  true  rule,  but  from  the  application  of  it  to 
particular  circumstances. 

In  this  case  D.  C.  Heminway,  who  was  the  company's  agent  at 
Newfield,  in  this  state,  wrote  the  policy  and  delivered  it  to  Stinson. 


470  INSURANCE   AGENTS. 

Upon  the  policy,  when  delivered,  was  tiiis  indorsement:  "  !>.  C. 
Heminway,  agent;"  the  word  "  agent  "  being  printed  on  the  form. 
The  policy  itself  contained  no  notice  that  there  was  any  limitation 
upon  the  power  of  the  agent,  and  there  was  no  evidence  to  charge 
the  insured  with  knowledge  o*"  any  restriction.  Under  such  circum- 
stances, with  what  authority  will  the  law  presume  the  agent  was 
invested?  The  true  answer  to  this  inquiry  will  correctly  solve  this 
controversy.  He  must  either  be  treated  as  a  special  agent  or  as  a 
general  agent,  in  the  sense  in  which  that  term  has  hereinbefore  been 
defined.  There  is  no  middle  ground  to  stand  ujjon.  If  it  is  deemed 
to  be  a  special  agency,  then  it  was  the  duty  of  the  insured  to 
acquaint  himself  with  the  limitations  by  which  the  power  of  the 
agent  was  circumscribed  before  he  dealt  with  him.  This  would 
render  insurance  through  an  agency  wholly  delusive,  and  prove  a 
mere  snare  to  the  unwary;  for  even  the  right  to  deliver  the  policy 
might  be  hampered  with  secret  instructions.  The  company  said  to 
the  insured,  "  This  is  my  agent;  you  may  deal  with  him  as  such," 
not  intimating  that  there  was  any  qualification  of  or  restraint  upon 
his  power.  Being  held  out  as  an  agent,  without  the  expression  of  any 
limitation,  public  policy  and  good  faith  unite  in  requiring  that  gen- 
eral authority  shall  be  ascribed  to  him  as  the  defendant's  repre- 
sentative. 

In  Insurance  Company  v.  Wilkinson,  13  Wall.  234,  Mr.  Justice 
Miller  says,  in  speaking  of  insurance  agents:  "  The  agents  are  stimu- 
lated by  letters  and  instructions  to  activity  in  procuring  contracts, 
and  the  party  who  in  this  manner  is  induced  to  take  out  a  policy 
rarely  sees  or  knows  anything  about  the  company  or  its  officers  by 
whom  it  is  issued,  but  looks  to  and  relies  upon  the  agent,  who  has 
persuaded  him  to  effect  insurance,  as  the  full  and  complete  repre- 
sentative of  the  company,  in  all  that  is  said  or  done  in  making  the 
contract.  Has  he  not  a  right  so  to  regard  him?  The  powers  of  the 
agent  diVt,  prima  facie,  co-extensive  with  the  business  intrusted  to 
his  care,  and  will  not  be  narrowed  by  limitations  not  communicated 
to  the  person  with  whom  he  deals."  That  the  authority  of  the 
agent  will  be  assumed  to  be  general  in  all  matters  relating  to  the 
effecting  of  the  insurance  was  maintained  by  Justice  Sharswood,  in 
Mentz  v.  Lancaster  Firs  Ins.  Co,.  79  Penna.  St.  476,  a  case  which  is 
cited  with  approbation  by  Chancellor  Runyon,  in  Combs  v.  Shreivs- 
bury  Ins.  Co.,  7  Stew.  403.  This  is  simply  another  form  of  express- 
ing the  idea  that  an  agent  shall  be  presumed  to  have  the  power  with 
which  he  is  apparently  clothed;  that  the  principal  shall  not  be  per- 
mitted to  say  to  the  pul)lic  in  a  general  way,  without  any  qualifica- 
tion, "  This  is  my  agent,"  and  at  the  same  time  charge  one  who,  at 


INSURANCE   AGENTS.  4/1 

a  remote  point,  deals  with  liim  in  that  capacity,  with  the  duty  of  first 
ascertaining  the  precise  limit  of  his  authority. 

In  Merserau  v.  Phcenix  Mutual  Life  Ins.  Co..,  66  N,  Y,  274,  Justice 
Allen  says:  "  The  rule  is  well  expressed  in  Insurance  Company  v. 
Wilkinson.,  13  Wall.  222,  and  Miller  \.  Phcenix  Ins.  Co.,  27  Iowa,  203. 
Insurance  companies  doing  business  by  agencies  at  a  distance  from 
their  principal  place  of  business  are  responsible  for  the  acts  of  the 
agent,  within  the  general  scope  of  the  business  intrusted  to  his  care, 
and  no  limitations  of  his  authority,  will  be  binding  on  parties  with 
whom  he  deals,  which  are  not  brought  to  their  knowledge.  It  is 
upon  and  within  this  general  principle  that  insurance  companies 
have  been  held  bound  by  the  acts  of  their  agents  in  dispensing  with 
or  varying  the  terms  and  conditions  of  their  policies  of  msurance." 
In  that  case  the  authority  of  the  agent  was  held  to  be  circumscribed, 
only  because  the  policy  itself  contained  an  express  limitation  of  his 
power.  That,  in  the  v'ew  of  this  court,  the  power  will  be  regarded 
as  general,  in  the  absence  of  express  limitations  in  the  policy  or  of 
notice  to  the  assured  of  the  existence  of  a  restriction,  may  be 
inferred  from  the  case  of  Catoir  v.  American  Ins.  Co.,  4  Vroom, 
487.  There,  Mr.  Justice  Bedle,  in  delivering  the  opinion  of  the 
court,  denied  the  right  of  the  agent  to  dispense  with  a  condition  in 
the  policy  exclusively,  for  the  reason  that  the  policy  contained  an 
express  limitation  of  authority.  Heminway  must,  therefore,  be  con- 
sidered the  general  agent  of  the  defendant  conipany,  invested  with 
the  right  to  exercise  a  power  commensurate  with  the  business 
apparently  intrusted  to  his  care.  That  such  an  agent  may  assent 
to  alienation  and  waive  conditions  on  behalf  of  an  insurance  com- 
pany is  established  by  numerous  authorities.  Woodbury  Savings 
Bank  V.  Charter  Oak  Co.,  31  Conn.  517;  Dayton  Ins.  Co.  v.  Kelly,  24 
Ohio  St.  345;  Goit  v.  National  Ins.  Co.,  25  Barb.  189;  Sheldon  w. 
Atlantic  Ins.  Co.,  26  N.  Y.  460;  Bodine  v.  Exchange  Fire  Ins.  Co.,  51 
N.  Y.  117;  Merserau  v.  Phxnix  Mut.  Co.,  66  N.  Y.  274;  Durar  v. 
Hudson  County  Mutual,  4  Zab.  171;  Shearman  v.  Niagara  Ins.  Co., 
46  N.  Y.  526;  Wood  on  Fire  Ins.,  §§  391.  393.  It  was  within  the 
power  of  the  agent  in  this  case,  under  the  apparent  authority 
intrusted  to  him,  to  waive  the  conditions  of  the  contract,  to  receive 
notice  of  the  alienation  and  assent  to  it  on  behalf  of  the  principal. 

The  question  remains  whether  there  was  evidence  from  which  the 
jury  might  lawfully  find  such  waiver.  Heminway  testified  that 
inquiry  was  made  whether  it  was  not  necessary  to  notify  the  com- 
pany of  the  change  in  the  title,  and  Stinson  then  asked  him  if  he 
would  attend  to  the  business,  and  he  said  he  would  attend  to  it,  and 
it  would  be  all  right.     The  conveyance  of  the  property  to  the  wife 


472  INSURANCE   AGENTS. 

had  been  previously  executed  under  the  direction  of  Heminway. 
Another  witness  testified  that  after  the  transfer  of  title  Stinson 
asked  Heminway  if  he  was  the  agent  of  the  company,  and  he  replied 
that  he  was.  Stinson  then  asked  him  if  he  would  notify  the  com- 
pany of  the  transfer,  and  he  said:  "  I  wdl  attend  to  it,  and  it  will 
be  all  right."  Heminway  having  power  not  only  to  receive  notice  of 
alienation,  but  also  to  waive  the  condition  of  the  policy  on  behalf 
of  the  company,  this  conversation  must  be  treated  as  if  it  had  been 
addressed  by  the  insured  to  the  board  of  directors,  and  the  replies 
of  the  agent,  as  the  replies  of  the  directors  to  the  insured.  In  this 
aspect  of  the  case  it  is  manifest  that  the  insured  was  justified  in 
drawing  the  inference  that  nothing  more  was  necessary  to  be  done 
on  his  part  to  continue  the  life  of  the  policy.  Until  notice  was 
given  to  him  to  do  some  further  act  he  had  a  right  to  rest  securely 
upon  the  agent's  assurance.  The  company  cannot  thus  lull  their 
policy-holder  into  a  false  security,  and  take  advantage  of  an  omis- 
sion on  his  part  thereby  induced,  to  work  a  forfeiture  of  their 
contract. 

The  trial  judge  submitted  the  case  to  the  jury  with  proper  instruc- 
tions upon  these  questions  of  law. 

The  judgment  below  should  be  affirmed. 

For  affirmance  —  The  Chancellor,  Chief  Justice,  Depue,  Dixon, 
Knapp,  Scudder,  Van  Syckel,  Clement,  Cole,  Dodd,  Green  —  ii. 

For  reversal  —  Magie,  Reed,  Whitaker  —  3. 


Beck,  J.,  in  VIELE  v.  GERMANIA  INSURANCE  CO.' 

26  Ia.  I,  57.  —  1868. 

VI.  We  approach  the  consideration  of  the  questions  involving  the 
power  of  the  agent  of  the  defendant  to  dispense  with  the  conditions 
of  the  policy  or  to  waive  the  forfeiture  resulting  from  the  breach 
thereof.  Defendant's  counsel  contend  that,  as  shown  by  the  policy, 
the  agent  possessed  no  power  to  assent  to  an  increase  of  risk  except 
in  writing,  and  that,  in  order  to  bind  the  company  by  his  acts, 
declarations  or  agreement,  dispensing  with  the  conditions  or  waiv- 
ing the  forfeiture,  his  authority  so  to  do  must  be  expressly  proved. 

There  was  evidence  tending  to  prove  that  the  agent  had  full  power 
to  effect  contracts  of  insurance,  to  fix  rates  of  premium,  to  give 
consent  to  the  increase  of  risk  and  change  of  occupation  of  build- 

'  The  pan  of  the  opinion  treating  of  waiver  generally,  is  printed  herein  at 
p.  417. 


INSURANCE   AGENTS.  473 

ings  insured,  to  cancel  policies  in  his  discretion,  and  that  in  the 
prosecution  of  their  business  it  was  the  custom  of  agents  of  insur- 
ance companies  to  exercise  supervision  over  property  covered  by 
policies  issued  at  their  respective  agencies  during  the  term  of  insur- 
ance. The  instructions  to  the  jury,  and  the  rulings  upon  objections 
to  evidence,  in  effect,  hold  that  the  authority  of  the  agent  to  waive 
forfeitures  and  dispense  with  conditions  may  be  sufficiently  shown 
by  proof  of  the  possession  and  exercise  of  the  powers  above  stated, 
and  that  express  authority  need  not  be  shown  in  order  to  bind  the 
defendant  thereby.  This  we  conceive  to  be  the  law.  By  proof  of 
the  possession  of  the  powers  aforesaid,  the  authority  of  the  agent  is 
shown  to  be  in  fact  of  the  broadest  and  most  plenary  character.  It 
is  difficult  to  conceive  of  an  act  in  the  prosecution  of  the  business 
of  insurance,  which  the  officers  of  the  companies  can  do,  that  cannot  be 
done  by  the  agent.  He  is  provided  with  blank  policies  whereby 
he  is  enabled  to  enter  into  the  contract  of  insurance.  These  blank 
instruments  are  in  no  sense  contracts  until  signed  by  him,  for  it  is 
expressly  provided  therein  that  they  "  shall  not  be  valid  unless 
countersigned  by  the  duly  authorized  agent  of  said  companies  at 
Davenport,   Iowa." 

Such  is  the  express  provision  of  the  policy  upon  which  this  suit  is 
brought,  and  there  is  not  one  word  of  limitation  upon  the  authority 
of  the  agent  contained  in  it.  No  attempt  was  made  to  prove  knowl- 
edge on  the  part  of  the  assured  of  any  limitation  of  the  power  of  the 
agent  further  than  by  the  policy  itself,  and  a  general  custom  or  rule 
of  insurance  companies  and  agents  that  no  change  can  be  made  by 
agents  in  the  printed  conditions  of  the  policy.  The  effect  of  such 
limitation  will  be  hereafter  noticed.  The  powers  of  the  agent,  then, 
are  those  of  a  general  agent,  and  the  companies  are  bound  by  his 
acts  which  are  within  the  scope  of  the  general  authority  he  pos- 
sesses, even  though  he  violates  limitations  upon  that  authority  which 
are  not  brought  home  to  the  knowledge  of  the  party  with  whom  he 
deals.  Story  on  Agency,  §§  126,  134;  Keenan  v.  Mo.  State  Mut. 
Ifis.  Co.,  12  Iowa,  131;  City  of  Davenport  V .  Peoria  Ins.  Co.,  17  Id.  276; 
Warner  v.  Peoria  Ins.  Co.,  14  Wis.  318,  323;  North  Berwick  Co.  v. 
N.  E.  F.  6^  M.  Ins.  Co.,  52  Maine,  336;  Post  v.  ^tna  Ins.  Co.,  43 
Barb.  351;  Sheldon  v.  Atlantic  Ins.  Co.,  26  N.  Y.  460. 

VII.  This  brings  us  to  inquire  what  powers  may  be  exercised  by 
the  agent  within  the  scope  of  his  general  authority.  Under  this 
general  authority  he  has  power  to  conduct  the  business  of  insurance 
of  his  principals  at  the  city  of  Davenport.  This  is  the  aggregation 
of  all  his  powers,  and  he  possesses  implied  authority  to  do  all  things 
proper  and  necessary  in  the  prosecution  of  that  business,  subject,  of 


474  INSURAN'CE    AGENTS. 

course,  to  limitations  imposed  by  his  i)rincipals  and  known  to  those 
with  whom  he  deals.  These  incidental  powers  may  be  numerous, 
and  their  enumeration  is  not  necessary.  Among  others,  he  has  the 
power  to  assent  to  the  increase  of  the  risk  and  to  a  change  of  occu- 
pancy of  property  insured,  and  to  cancel  policies  on  account  of 
increase  of  risks  or  for  any  other  reason.  In  the  exercise  of  these 
powers  he  is  guided  by  his  own  discretion,  which,  it  is  presumed,  will 
be  exercised  for  the  best  interest  of  his  principals.  He  has  also  all 
the  powers  which,  by  the  usages  of  the  business,  are  properly  and 
ordinarily  exercised  by  agents  engaged  therein.  Story  on  Agency, 
§§  77,  io6. 

It  appears  that  insurance  agents  usually  exercise  supervision  over 
the  property  insured  by  them,  and  this  necessarily  results  from  the 
character  of  the  business  and  their  authority  to  cancel  policies  on 
account  of  increase  of  risk.  The  agent  is  charged,  by  the  terms  of 
the  policy  on  which  this  suit  is  based,  with  the  power  to  determine 
whether  the  risk  is  increased.  If  he  so  determines,  he  may  cancel 
the  policy  and  put  an  end  to  the  contract.  This  involves  the  neces- 
sity of  examination  of  the  condition  of  the  insured  property  during 
the  life  of  the  policy,  and  constant  watchfulness  to  protect  the 
interest  of  the  underwriters.  If  he  determines  that  the  risk  is 
increased,  such  determination  is  final,  for  it  seems  the  assured  has 
no  appeal  therefrom  and  no  redress  for  loss  that  may  be  sustained 
thereby.  Such  being  the  great,  and  in  some  respects  extraordinary, 
power  of  the  agent,  it  follows  that  he  is  clothed  with  the  power  to 
dispense  with  conditions  and  waive  the  effects  of  breaches  thereof, 
in  contracts  of  insurance  made  by  him.  These  powers  are  neces- 
sary incidents  of  his  general  authority,  and  without  their  exercise 
he  could  not  act  to  its  full  extent.  If  he  can  determine  that  the 
conditions  of  the  contract  have  been  broken,  surely  he  can  also 
determine  that  they  have  not  been  broken.  If  he  can  put  an  end  to 
the  contract  because  of  the  increase  of  the  risk,  and  the  consequent 
forfeiture,  certainly  he  can  waive  that  forfeiture.  If,  possessing 
such  full  authority  to  make  the  contract,  determine  that  it  is  per- 
formed, and  to  put  an  end  to  it,  he  cannot  dispense  with  its  con- 
ditions after  it  is  executed,  the  rules  of  law  controlling  agents 
generally  and  all  kinds  of  contracts,  must  be  held  not  applicable 
to  insurance  policies  and  insurance  agents.  These  companies  have 
no  way  of  dealing  with  their  customers  and  the  public,  except 
through  their  agents.  They  are  incorporations  existing  under  the 
laws  of  another  State.  Practically  those  powers  can  only  be  exer- 
cised by  agents.  They  are  inherent  in  the  corporations,  whose 
interest  as  well  as  fair  dealing  towards  others  (as  it  did  in  the  case 


INSURANCE   AGENTS.  475 

before  us)  may  require  their  exercise.  The  agents,  therefore,  must 
be  held  to  have  full  authority  to  dispense  with  the  conditions  of 
policies,  after  their  execution,  and  to  waive  forfeitures  for  breaches 
thereof. 

As  we  have  already  intimated,  the  law,  in  its  application  to  other 
kinds  of  contracts  and  to  agents  transacting  other  kinds  of  business 
fully  sustains  the  doctrines  we  have  announced.  This  may  readily 
be  illustrated  by  facts  disclosed  by  the  record.  The  owner  of  the 
property  upon  which  the  policy  in  question  was  issued  was  a  non- 
resident of  the  State,  and  the  business  was  transacted  for  him  by  an 
agent,  who,  it  seems,  exercised  general  powers  in  all  matters  per- 
taining to  the  property.  Now,  suppose  this  agent  had  executed  a 
contract  for  the  rebuilding  of  the  property  burned,  or  his  principal 
had  executed  it,  and  it  was  delivered  by  the  agent,  blanks  being 
filled  by  him  under  proper  authority,  with  the  name  of  the  other 
contracting  party,  sums  to  be  paid,  etc.  This  contract  contained 
many  conditions,  as  we  may  suppose,  for  the  benefit  of  the  property 
owner,  and  the  agent  was  authorized  to  assent  in  writing  to  the  dis- 
pensation of  certain  of  them,  and  the  power  to  put  an  end  to  the 
contract  in  case  of  the  failure  of  the  other  party  to  comply  with  its 
conditions.  During  the  progress  of  the  work  questions  arose 
whether  certain  things  done  or  omitted  to  be  done  by  the  builder 
were  in  violation  of  the  conditions  of  the  contract.  The  agent,  as 
to  whose  power  not  one  word  of  limitation  existed  in  the  contract, 
or  was  otherwise  known  to  the  builder,  asserts  that  the  matters  in 
question  are  not  in  violation  of  the  contract,  and  treats  it  as  com- 
plied with,  or  verbally  assents  to  the  dispensation  of  certain  con- 
ditions. When  the  building  is  completed,  in  accordance  with  the 
contract  as  thus  modified,  the  principal  refuses  to  pay  the  sum 
agreed  on,  because  of  non-compliance  on  the  part  of  the  builder 
with  the  conditions  thus  waived  by  the  agent.  Upon  no  recognized 
rules  of  law  could  this  defense  be  sustained,  and  we  would  have  no 
difficulty  in  finding  ample  authorities  in  support  of  the  doctrine  that 
the  waiver  of  forfeitures  by  reason  of  the  breaches  of  the  conditions 
and  the  dispensation  of  the  conditions  by  the  agent  were  binding  on 
the  principal.  This  supposed  case  is  not  distinguishable  upon 
principle  from  the  case  disclosed  by  the  record. 

The  views  above  advanced  are  fully  sustained  by  the  more  recent 
decisions  of  the  courts.  In  the  Peoria  Fire  and  Marine  Ins.  Co.  v. 
Hall,  12  Mich.  213,  the  knowledge  of  the  agent  when  the  policy  was 
issued  that  gunpowder  was  kept  on  the  premises  insured  was  held  to 
be  a  waiver  of  a  condition  prohibiting  the  keeping  of  it  without 
written  permission.     In  Warner  v.  The  Peoria  Fire  and  Marine  Ins. 


476  INSURANCE   AGENTS. 

Co.,  14  Wis.  319,  the  policy  required  notice  to  be  given  of  additional 
insurance,  and  consent  thereto  indorsed  on  the  policy.  The  a^^ent 
indorsed  a  waiver  uf  this  condition  as  follows:  "  Other  insurance 
permitted  without  notice  until  required."  The  court  held  this  to 
be  a  sufficient  waiver,  and  that  the  agent  had  authority  to  make  it. 
In  the  N.  E.  Fire  and  Marine  Ins.  Co.  v.  Schett/er,  38  111.  170,  the 
agent,  upon  the  receipt  of  additional  premium,  gave  permission, 
indorsed  on  the  policy,  for  the  removal  of  the  building  and  goods 
to  another  lot.  In  a  suit  upon  the  policy  the  insurance  company 
claimed  that  the  agent  had  no  power  to  consent  to  the  removal  of 
the  property.  The  court  held  that  the  power  will  be  presumed 
without  proof.  The  following  additional  authorities  support  the 
doctrine  we  have  above  announced:  Sanfordw  Handy,  23  Wend.  260; 
Conoi'er  v.  Mutual  Ins.  Co.,  1  Comst.  290;  Roiuley  \.  Empire  Ins.  Co., 
36  N.  Y.  550;  Plunil)  v.  Cattaraugus  Ins.  Co.,  18  Id.  392;  Sheldon  v. 
Atlantic  Fire  and  Mutual  Ins.  Co.,  26  Id.  465.  The  cases  cited  in 
prior  pages  in  support  of  the  positions  that  there  may  be  a  waiver 
of  a  breach  of  the  conditions  of  a  policy,  and  that  such  waiver  may 
be  by  parol  or  presumed  from  the  acts  of  the  parties,  sustain  the 
point  here  made;  the  waiver  in  those  cases  being  generally,  if  not 
all,  made  by  agents.' 

It  is  not  to  be  disguised  that,  upon  this  question,  there  is  a  very 
great  conflict  of  authorities,  some  cases  restricting  the  power  of 
the  agents  to  the  most  narrow  limits  of  the  express  terms  of  their 
appointments,  and  circumscribing  it  strictly  by  the  restrictions 
imposed  by  the  principals,  the  insurance  companies.  But  the  more 
recent  cases  support  the  contrary  view,  and  are  in  consonance  with 
the  doctrines  we  have  attempted  to  maintain  in  this  opinion. 

As  an  illustration  of  the  progress  of  the  authorities  upon  this  ques- 
tion it  may  be  mentioned  that  Roivley  v.  The  Empire  Ins.  Co.,  above 
cited,  which  was  decided  in  1867,  overrules  five  prior  cases  adjudged 
in  the  courts  of  New  York,  and  is  supported  by  only  one  older  case 
in  the  reports  of  that  State,  viz.,  Plumb  v.  The  Cattaraugus  Ins.  Co., 
18  N.  Y.  392.  These  latter  decisions  are  in  harmony  with  reason 
and  sound  public  policy,  in  view  of  the  manner  of  conducting  the 
business  of  insurance  through  a  system  of  agencies  far  distant  from 
the  place  of  business  of  the  corporations.  While  it  is  true  that 
these  companies  transact  business  only  through  their  agents  at  dis- 
tant points,  it  is  also  true  that  much  of  their  business  is  acquired 
through  the  diligence,  skill  and  capacity  of  these  agents,  and 
that  parties  effecting  insurance  rely  in  a  great  measure  upon   the 

'  See  ante,  p.  420,  and  following. 


INSURANCE   AGENTS,  477 

representations  made  by  them  as  to  the  rights  and  obligations  of 
the  respective  parties  to  the  policies,  and  are  controlled  in  the  care 
of  the  insured  property  by  their  directions.  The  acts  of  these 
agents,  in  all  matters  pertaining  to  the  proper  business  they  are 
appointed  to  transact,  should  bind  their  principals,  unless  contrary 
to  restrictions  of  their  powers,  brought  to  the  knowledge  of  those 
with  whom  they  deal. 

It  is  argued  that,  inasmuch  as  by  the  restrictions  imposed  on  the 
power  of  the  agent  by  custom,  as  well  as  by  the  rules  of  the  com- 
pany, he  can  make  no  change  in  the  printed  conditions  of  the  policy, 
therefore  he  had  no  authority  to  waive  a  forfeiture  of  such  terms, 
or  dispense  with  their  performance.  Without  determining  whether 
this  could  be  done  by  agreement  at  the  time  the  policy  was  issued, 
we  are  clearly  of  the  opinion  that  such  restriction  of  authority  in  no 
way  affects  his  power  so  to  do  after  the  policy  is  issued,  in  a  proper 
case,  and  without  fraud  on  his  part  or  by  the  assured.  The  distinc- 
tions between  omitting  a  condition  required  by  the  terms  of  his 
authority  and  by  custom  to  be  introduced  into  the  policy  and  the 
waiver  of  such  condition  for  a  proper  cause,  after  the  policy  had 
been  executed  are  obvious. 

It  has  been  held  that  an  agent  intrusted  with  blank  policies  to  be 
filled  up  and  countersigned  by  him  may  bind  the  underwriter  by  new 
clauses  or  conditions  inserted  by  the  agent  before  issuing  the  policy, 
2  Phillips'  Ins.  528,  §  1877;  Gloucester  Manufacturing  Co.  wHoivard, 
5  Gray  497. 


Devens,  J.,  IN  KYTE  v.  COMMERCIAL  UNION 
ASSURANCE    CO. 

144  Mass.  43,  45.  —  1887. 

In  regard  to  the  policy  upon  the  house,  other  questions  are  pre- 
sented. The  defendant  had  offered  evidence  that  the  house  was 
used  by  the  plaintiff,  during  the  time  covered  by  the  policy,  for  the 
illegal  sale  of  intoxicating  liquors;  and  requested  a  ruling  that,  if 
this  were  the  case,  the  plaintiff  could  not  recover.  This  ruling  was 
refused,  and  the  exception  thereto  is  not  now  insisted  on.  The 
jury  were,  in  this  connection,  instructed  that,  if  there  was  such  a 
change  in  the  use  of  the  house  and  the  manner  of  its  occupation  (it 
having  been  insured  as  a  dwelling  house),  as  to  increase  the  risk, 
without  the  knowledge  of  the  defendant,  this  would  affect  the  policy. 

The  plaintiff  then  offered  the  evidence  of  Alexander  Blaney,  the 
local  agent  of  the  defendant,  who  was  also  chairman  of  the  select- 


478  INSURAN'CE   AGENTS. 

men  of  Natick,  that  the  plaintiff  had,  during  the  time  covered  by 
the  policy,  received  a  victualler's  license,  and  one  to  sell  spirituous 
liquors  of  all  kinds;  and  that  he  informed  the  plaintiff,  on  granting 
the  license,  that  he  could  continue  under  the  policies  of  insurance 
as  they  then  existed,  although  he  would  have  to  charge  him  more 
the  next  time.  The  plaintiff,  as  well  as  Blaney,  testified  that,  at  the 
time  of  obtaining  the  license  as  a  victualler  and  also  to  sell  liquor, 
or  at  some  other  time,  it  was  agreed  that  this  would  not  affect  any- 
thing during  the  life  of  the  policy,  but  that  Blaney  would  not  give 
another  on  the  same  terms.  Upon  this  evidence  the  defendant 
requested  the  court  to  instruct  the  jury,  in  substance,  that  a  local 
agent,  with  authority  to  receive  premiums  and  issue  policies, 
had  no  authority,  as  such,  to  waive  the  terms  and  condition^ 
of  the  policy,  or  to  waive  the  condition  in  the  policy  which 
required  the  written  or  printed  assent  of  the  company  to  any 
change  in  "  the  situation  or  circumstances  affecting  the  risk."  To 
these  instructions  the  defendant  was  entitled.  They  correctly  state 
the  law,  and  were  called  for  by  the  evidence.  An  agent  to  receive 
premiums  and  issue  policies  is  not,  independently  of  evidence  show- 
ing that  he  has  a  much  larger  authority  than  this,  empowered  to 
waive  conditions  so  important  that  parties  have  seen  fit  to  incor- 
porate them  into  their  contract.  Some  additional  evidence  must  be 
offered,  as  that  he  had  been  held  out  by  the  company  as  possessing 
some  authority,  or  that  the  company  had  so  ratified  similar  acts,  or 
had  so  conducted  itself  in  regard  to  his  other  transactions,  that  the 
insured  was  justified  in  believing  that  he  had  such  authority.  Tate 
v.  Citizens'  Ins.  Co.,  13  Gray,  79;  Harrison  v.  City  Ins.  Co..,  9  Allen, 
231;  Lohnesv.  Ins.  Co.  of  North  America.,  121  Mass.  439.  Nor,  even 
if  the  agent  had  the  fullest  authority,  could  the  conditions  of  the 
policy  be  waived  except  in  the  manner  in  which  they  provide  for 
such  waiver.  A  company  which  has  seen  fit  to  prescribe  that  the 
terms  and  conditions  of  its  policy  shall  only  be  waived  by  its  written 
or  printed  assent,  has  prescribed  only  a  reasonable  rule  to  guard 
against  the  uncertainties  of  oral  evidence,  and  by  this  the  insured 
has  assented  to  be  bound.  Hale  v.  Mechanics'  Ins.  Co.,  6  Gray,  169; 
Worcester  Bank  v.  Hartford  Ins.  Co.,  11  Gush.  265.  Upon  this  point 
the  case  was  submitted  by  the  learned  judge  to  the  jury  only  upon 
the  question  whether  the  plaintiff  had  acted  in  good  faith.  This 
was  erroneous,  for  the  plaintiff  might  have  acted  in  entire  good 
faith,  and  honestly  believed  that  his  change  in  the  occupation  of  the 
premises  insured  was  justified  upon  the  oral  permission  of  an  agent 
without  authority  for  any  such  purpose,  and  yet  by  such  change 
have  avoided  his  policy. 


INSURANCE   AGENTS.  479 

DRYER  V.  SECURITY  FIRE  INSURANCE  CO. 
94  Ia.  471.  — 1895. 

Action  at  law  to  recover  the  amount  of  a  loss  alleged  to  have 
been  covered  by  a  policy  of  insurance  issued  by  the  defendant. 
There  was  a  trial  by  jury,  and  a  verdict  and  judgment  for  the  plain- 
tiff.    The  defendant  appeals.     Reversed 

Robinson,  J. — The  defendant  issued  to  the  plaintiff  a  policy 
insuring  him  against  loss  or  damage  by  fire,  to  the  amount  of  $400, 
on  household  furniture,  beds,  bedding,  sewing  machine,  wearing 
apparel,  and  provisions.  During  the  life  of  the  policy,  property  it 
was  designed  to  cover,  to  the  amount  of  $340,  was  destroyed  by  fire. 
The  defendant  resists  payment  on  the  ground  that  the  property 
insured  was  covered  by  the  policy  only  when  on  the  premises  therein 
described,  and  that  it  was  five  miles  from  them  when  destroyed. 
The  policy  was  issued  on  a  written  application  of  the  plaintiff,  which 
was  prepared  by  an  agent  of  the  defendant  named  Adams.  The 
application  described  the  property  insured  as  situate  on  and  con- 
fined to  premises  on  a  section  specified,  and  that  description  was 
carried  into  the  policy.  It  may  be  conceded,  for  the  purposes  of 
this  appeal,  that,  according  to  the  terms  of  the  policy,  it  covered 
the  property  in  question  only  when  on  the  premises  described;  and 
it  is  admitted  that  the  property  was  five  miles  from  them  when 
destroyed,  although  in  the  same  county.  The  plaintiff  is  a  German, 
unable  to  read  or  write  the  English  language.  The  application  was 
signed  in  October,  1889,  and  asked  for  insurance  for  the  term  of 
five  years  from  the  first  day  of  that  month.  The  policy  was  issued 
as  asked  in  the  application.  At  that  time  the  plamtiff  occupied  the 
premises  described  in  the  application,  as  a  tenant,  and  his  lease  for 
them  expired  on  the  first  day  of  the  next  March.  He  testifies  that 
when  the  application  was  prepared  he  told  Adams  that  he  would 
have  to  move  on  the  first  of  March,  and  had  better  wait  before 
insuring  until  he  was  settled;  that  Adams  told  him  it  would  make 
no  difference,  so  long  as  he  remained  in  the  county;  that  Adams 
said  he  "  would  fix  it  all  right  for  him,  so  that  it  would  be  effectual 
wherever  he  might  move  to  in  the  county  "  The  application  was 
then  executed,  but  was  not  read  by  nor  to  the  plaintiff.  He  had  no 
knowledge  before  the  fire  that  the  policy  did  not  cover  the  property 
excepting  while  it  was  in  the  premises  he  occupied  when  insured. 

Adams  denies  some  of  the  statements  made  by  plaintiff,  and 
claims  that  he  told  the  plaintiff  that  in  case  of  a  change  in  location 
he  must  notify  the  company,  but  the  jury  was  authorized  to  find 
the  facts  to  be  as  testified  by  the  plaintiff.  The  defendant  contends 
that  the  plaintiff  is  not  entitled  to  recover,  even  though  it  be  con- 


480  INSURANCE   AGENTS. 

ceded  that  his  claims  in  regard  to  the  statements  of  Adams  are  well 
founded,  for  the  reason  that  Adams  was  a  soliciting  agent  only, 
without  power  to  make  contracts  for  his  company.  It  cannot  be 
claimed  that  the  evidence  shows  the  authority  of  Adams  to  have 
been  greater  than  ttiat  of  a  soliciting  agent.  It  does  not  appear 
that  he  had  power  to  do  more  than  to  obtain  applications  for  insur- 
ance, and  forward  them,  with  premiums,  to  the  defendant.  Cer- 
tainly it  is  not  shown  that  he  had  any  power  to  agree  that  a  policy 
would  be  issued,  on  the  application  of  the  plaintiff,  which  would 
cover  the  property  insured,  wherever  it  might  be,  in  Clayton  county. 
It  is  the  well-settled  rule  in  this  State  that  the  insurance  company 
is  bound  by  the  knowledge  of  material  facts  which  the  soliciting 
agent  possesses  when  he  takes  an  application  for  insurance.  If  the 
applicant  answers  correctly  the  questions  asked  by  the  agent,  he 
has  a  right  to  rely  upon  the  latter  to  so  prepare  the  application  that 
it  will  properly  state  the  facts  of  which  the  principal  wishes  to  be 
advised  before  issuing  the  policy.  If  the  agent  prepares  the  appli- 
cation, but  fails  to  have  it  show  material  facts,  and  the  applicant  is 
blameless,  the  failure  of  the  agent  is  chargeable  to  the  company, 
and  furnishes  no  ground  upon  which  it  can  avoid  liability.  Jamison 
^'.  Insurance  Co.,  85  Iowa,  233,  52  N.  W.  185,  and  cases  therein  cited; 
Reynolds  v.  Insurance  Co.,  80  Iowa,  566,  46  N.  W.  569;  McComb  v. 
Insurance  Co.,  83  Iowa,  251,  48  N.  W.  1038.  It  was  the  right  of  the 
plaintiff  to  insure  his  property  only  on  condition  that  the  insurance 
should  be  good  wherever  the  property  might  be  in  Clayton  county, 
and  it  was  within  the  apparent  power  of  the  defendant  to  furnish 
that  kind  of  insurance.  It  was  a  part  of  the  duty  of  Adams,  in  pre- 
paring the  application,  to  designate  in  it  the  place  or  location  where 
the  insured  property  was  to  be  kept  during  the  life  of  the  policy. 
He  knew  that  the  plaintiff  would  take  insurance  only  on  condition 
that  it  .should  continue  good  wherever  the  insured  property  might 
be,  in  Clayton  county,  during  the  life  of  the  policy.  He  knew,  for 
he  was  told,  that  plaintiff  could  not  read  in  the  English  language. 
The  application  was  designed  to  be  the  proposition  of  the  plaintiff 
for  insurance,  and,  as  the  agent  prepared  it,  he  should  have  caused 
it  to  express  fairly  and  fully  the  proposition  as  made  by  the  plain- 
tiff. Knowing  what  that  was,  he  volunteered  to  express  it,  but 
failed  to  do  so.  If  the  plaintiff  was  ignorant  of  that  failure,  and  was 
not  guilty  of  culpable  negligence  in  not  discovering  the  omission  in 
the  application  or  policy,  it  may  be  that  the  defendant  would  be 
estopped  to  deny  that  its  policy  covered  the  loss  in  question.  Eat 
the  District  Court  instructed  the  jury  as  follows:  "'  (8)  The  plain- 
tiff,  however,   alleges,  in  substance,   that,  at  the  time  he  made  the 


INSURANCE   AGENTS.  481 

application  for  said  policy,  Mr.  Adams,  who,  as  agent  for  said  com- 
pany, solicited  said  application,  represented  to  the  plaintiff,  without 
qualification,  that  the  policy  to  be  issued  to  him  would  cover  said 
property,  wherever  the  same  might  be  located  in  this  county,  and 
that  he,  believing  this  and  relying  upon  it,  was  induced  to  make  the 
application,  and  accordingly  removed  the  property.  The  defendant 
company  denies  this,  and  thus  is  presented  the  issue  which  you  are 
to  decide.  (9)  The  burden  of  proof  is  on  the  plaintiff  to  prove,  by 
a  preponderance  of  evidence,  that  he  was  deceived  by  the  agent  of 
the  company  in  the  manner  aforesaid.  Unless  the  plaintiff  has  so 
proved  this,  he  cannot  recover.  If  he  has  so  proved  this  he  is 
entitled  to  a  verdict  in  his  favor.  (10).  The  plaintiff  and  the  agent 
Adams  have  both  testified.  Both  agree  that  the  plaintiff  told 
the  agent  that  he  was  only  a  tenant,  and  might  want  to  remove  his 
property.  The  plaintiff  testifies,  in  substance,  that  the  agent  told 
him,  without  qualification,  that  it  would  be  fixed  so  that  he  could 
remove  the  property  to  any  place  in  the  county,  and  said  nothing 
about  notice  to  the  company.  Adams  testifies,  in  substance,  that 
he  told  the  plaintiff  that  he  could  remove  the  property-to  any  place  in 
the  county  by  giving  notice  to  the  company.  If  Adams  was  right 
in  his  testimony,  the  plaintiff  cannot  recover.  If  the  plaintiff  was 
right,  and  if  he  was  misled,  as  he  claims,  thereby,  the  plaintiff  can 
recover."  This  portion  of  the  charge,  in  terms,  instructed  the  jury 
in  regard  to  alleged  misrepresentations  of  the  agent,  and  the  reliance 
of  the  plaintiff  upon  them;  but  its  real  effect  was  to  instruct  the  jury 
that  the  plaintiff  was  authorized  to  rely  upon  the  statements  of  the 
agent  as  to  what  the  policy  would  cover,  or,  in  other  words,  that 
the  agent  might  make  a  contract  which  would  bind  his  principal. 
That  this  was  the  natural  and  legal  effect  of  the  language  used, 
cannot,  we  think,  be  successfully  denied.  But  as  we  have  seen, 
Adams  appears  to  have  been  only  a  soliciting  agent,  and  if  that  was 
his  true  character  it  was  no  part  of  his  duty,  and  not  within  the 
scope  of  his  powers,  to  contract  for  his  principal,  to  construe  its 
policies,  or  to  determine  their  legal  effect.  As  he  was  a  special 
agent,  not  clothed  with  any  apparent  right  to  do  more  than  to  solicit 
insurance,  and  to  perform  such  acts  as  were  incident  to  that  power, 
the  plaintiff  was  charged  with  knowledge  of  the  limitations  of  his 
agency,  and  was  not  authorized  to  give  any  contractual  effect  to  the 
statements  he  made.  His  principal  was  bound  by  the  knowledge 
he  had  when  the  application  was  prepared  and  accepted,  but  not  by 
statements  he  made  outside  the  scope  of  his  apparent  powers.  We 
conclude  that  the  District  Court  erred  in  giving  the  portion  of  the 
charge  quoted,  and  its  judgment  is  for  that  reason  reversed. 

LAW  OF  INSURANCE  —  3 1 


482  INSLRANCE    AGENTS. 

INSURANCE  CO.  v.  WOLFF. 

95  U.  S.  326. -1877. 

The  Globe  Mutual  T^ife  Insurance  Company  of  New  York,  on  the 
5th  of  November,  1869,  issued  to  Eliza  Garber  a  policy  of  insurance 
for  $5,000  upon  the  life  of  her  husband,  commencing  on  the  first  of 
that  month.  The  premium  was  payable  annually  on  the  first  of 
November.  The  policy  stipulated  for  the  payment  of  the  amount 
of  the  insurance  within  sixty  days  after  due  notice  and  proof  of  the 
death  of  the  insured,  subject,  however,  to  certain  express  con- 
ditions. One  of  these  conditions  provided,  that,  if  the  premiums 
were  not  paid  on  or  before  the  days  mentioned  for  their  payment, 
the  company  should  not  be  liable  for  the  sum  insured,  or  any  part 
of  it,  and  that  the  policy  should  cease  and  determine.  Another 
condition  provided,  that,  if  the  insured  resided  in  any  part  of  the 
United  States  south  of  the  33d  degree  of  north  latitude,  except  in 
California,  between  the  first  of  July  and  the  first  of  Novem.ber,  with- 
out the  consent  of  the  company  previously  given  in  writing,  the 
policy  should  be  null  and  void.  And  the  policy  declared  that  agents 
of  the  company  were  not  authorized  to  make,  alter,  or  discharge 
contracts,  or  waive  forfeitures.  The  insured  died  at  the  city  of 
New  Orleans  on  the  iith  of  November,  1872.  Between  the  first  of 
July  and  the  first  of  November  of  that  year  he  had  resided  at  that 
city,  which  is  south  of  the  33d  degree  of  north  latitude,  without  the 
previous  consent  in  writing  of  the  company;  and  the  annual  pre- 
mium due  on  the  first  of  that  month  was  not  paid  on  or  before  that 
day.  Due  notice  and  proof  of  his  death  having  been  given  to  the 
company,  and  payment  by  it  refused,  suit  was  brought  by  Mrs.  Gar- 
ber in  the  Circuit  Court  of  St.  Louis  county,  whence  it  was  removed, 
on  the  petition  of  the  company,  to  the  Circuit  Court  of  the  United 
States  for  the  Eastern  District  of  Missouri.  Judgment  was  ren- 
dered for  the  plaintiff,  and  the  cause  removed  here  by  writ  of  error. 
Mrs.  Garber  died,  and  Wolff,  her  executor,  was  made  the  defendant 
in  error. 

Mr.  Justice  Fikld.  — By  the  residence  of  the  insured  within  the 
prohibited  district  of  country  during  the  period  designated  in  the 
policy  without  the  previous  consent  of  the  company,  and  the  failure 
of  the  assured  to  pay  the  annual  premium  when  it  became  due,  the 
policy,  by  its  express  terms,  vi^as  forfeited,  and  the  company 
released  from  liability,  unless  the  forfeiture  was  waived  by  the 
action  of  the  company,  01  of  its  agents  authorized  to  represent  it  in 
that  respect. 

The  waiver  of  the  forfeiture  for  the  non-payment  of  the  premiun-i 


INSURANCE   AGENTS.  483 

due  on  t.ij  first  of  November,  1872,  is  alleged  on  the  ground  that 
the  premium  was  subsequently  paid  to  an  agent  of  the  company,  he 
delivering  its  receipt  for  the  same,  signed  by  its  secretary,  and 
countersigned  by  the  manager  and  cashier  of  the  local  ofifice,  the 
plaintiff  contending  that  the  company,  by  its  previous  general 
course  of  dealing  with  its  agents,  and  its  practice  with  respect  to 
the  policy  in  suit,  had  authorized  the  premiums  to  be  paid  and  the 
agent  to  receive  the  same  after  they  became  due,  and  thus  had 
waived  any  right  to  a  strict  compliance  with  the  terms  of  the  policy 
as  to  the  payment  of  premiums. 

The  waiver  of  the  forfeiture  arising  from  the  residence  within  the 
prohibited  district  between  the  first  of  July  and  November,  without 
the  previous  consent  of  the  company,  is  also  alleged  from  the  sub- 
sequent payment  of  the  premium  and  its  receipt  by  the  local  agent, 
the  plaintiff  contending  that  the  premium  was  received  with  knowl- 
edge by  the  agent  of  the  previous  residence  of  the  insured  within 
the  prohibited  district. 

It  appears  from  the  record  that  the  deceased  was  taken  sick  with 
the  yellow  fever  at  New  Orleans,  on  the  6th  or  7th  of  November, 
1872,  and  died  on  the  nth  of  the  month,  between  the  hours  of 
eleven  and  twelve  in  the  forenoon.  On  the  previous  day  a  telegram 
was  sent  by  Mrs.  Garber  from  New  Orleans  to  a  gentleman  in  St. 
Louis,  directing  the  latter  to  go  to  the  agency  of  the  company  in 
that  city,  at  which  the  policy  was  issued,  and  pay  the  premium  due 
on  the  first  of  the  month.  Accordingly,  on  the  following  morning, 
at  about  nine  o'clock,  the  premium  was  paid  by  this  gentleman, 
and  a  renewal  receipt  was  thereupon  delivered  to  him.  This 
renewal  receipt  was  dated  in  New  York,  and  signed  by  the  secre- 
tary of  the  company.  It  not  only  acknowledged  the  receipt  of  the 
premium,  but  it  continued  the  policy  in  force  for  another  year. 
The  practice  of  the  company  was  to  send  to  its  agents  in  St  Louis 
receipts  in  this  form,  signed  by  its  secretary,  to  be  countersigned 
by  the  local  manager  and  cashier  before  being  used.  The  receipt 
given  was  thus  countersigned.  The  payment  was  made  in  the  pres- 
ent case  to  a  boy  in  the  office  of  the  agent,  and  by  him  the  renewal 
receipt  was  delivered.  It  was  his  habit  to  receive  premiums  and 
deliver  the  proper  renewal  receipt  in  the  absence  of  the  agent.  In 
this  case  the  money  was  given  by  him  on  the  latter's  coming  to  the 
office  the  same  morning.  The  agent  credited  the  amount  to  the 
company  in  his  semi-monthly  account  transmitted  to  the  home 
office.  The  gentleman  who  paid  the  premium  was  not  aware  at  the 
time  that  the  insured  was  sick,  and  no  inquiries  were  made  by  the 
boy  or  the  agent  as  to  his  health.      It  is  conceded  that  they  had  no 


484  INSURANCE   AGENTS. 

infoimation  on  the  subject.  A  few  days  afterwards,  the  agent 
learned  of  the  death  of  the  insured,  and  of  the  sickness  which  was 
the  immediate  cause  of  it,  and  informed  the  home  office.  The  com- 
pany at  once  telegraphed  the  agent  to  return  the  premium  and 
demand  a  surrender  of  the  renewal  receipt.  The  money  was  accord- 
ingly tendered  to  the  gentleman  who  paid  it,  and  a  surrender  of  the 
renewal  receipt  demanded;  but  the  tender  was  not  received,  nor 
the  receipt  returned. 

The  conditions  mentioned  in  the  policy  could,  of  course,  be  waived 
by  the  company,  either  before  or  after  they  were  broken;  they  were 
inserted  for  its  benefit,  and  it  depended  upon  its  pleasure  whether 
they  should  be  enforced.  The  difficulty  in  this  case,  and  in  nearly 
all  cases  where  a  waiver  is  alleged  in  the  absence  of  written  proof 
of  the  fact,  arises  from  a  consideration  of  the  effect  to  be  given  to 
the  acts  of  agents  of  the  company  in  their  dealings  with  the  assured. 
Of  course,  such  agents,  if  they  bind  the  company,  must  have 
authority  to  waive  a  compliance  with  the  conditions  upon  a  breach 
of  which  the  forfeiture  is  claimed,  or  to  waive  the  forfeiture  when 
incurred,  or  their  acts  waiving  such  compliance  or  forfeiture  must 
be  subsequently  approved  by  the  company.  The  law  of  agency  is 
the  same,  whether  it  be  applied  to  the  act  of  an  agent  undertaking 
to  continue  a  policy  of  insurance,  or  to  any  other  act  for  which  his 
principal  is  sought  to  be  held  responsible.  The  principle  that  no 
one  shall  be  permitted  to  deny  that  he  intended  the  natural  conse- 
quences of  his  acts  when  he  has  induced  others  to  rely  upon  them, 
is  as  applicable  to  insurance  companies  as  it  is  to  individuals,  and 
will  serve  to  solve  the  difficulty  mentioned.  This  principle  is  one  of 
sound  morals  as  well  as  of  sound  law,  and  its  enforcement  tends 
to  uphold  good  faith  and  fair  dealing.  If,  therefore,  the  conduct  of 
the  company  in  its  dealings  with  the  assured  in  this  case,  and  with 
others  similarly  situated,  has  been  such  as  to  induce  a  belief  that  so 
much  of  the  contract  as  provides  for  a  forfeiture  if  the  premium  be 
not  paid  on  the  day  it  is  due,  would  not  be  enforced  if  payment  were 
made  within  a  reasonable  period  afterwards,  the  company  ought 
not,  in  common  justice,  to  be  permitted  to  allege  such  forfeiture 
against  one  who  has  acted  upon  the  belief,  and  subsequently  made 
the  payment.  And  if  the  acts  creating  such  belief  were  done  by  the 
agent  and  were  subsequently  approved  by  the  company,  either 
expressly  or  by  receiving  and  retaining  the  premiums,  the  same  con- 
sequences should  follow. 

This  principle  applied  to  the  case  at  bar  will  render  the  question 
presented  one  of  easy  solution.  The  company,  notwithstanding  the 
provisions  in  the  policy  that  its  agents  were  not  authorized  to  waive 


INSURANCE   AGENTS.  485 

forfeitures,  sent  to  them  renewal  receipts  signed  by  its  secretary,  to 
be  used  when  countersigned  by  its  local  manager  and  cashier,  leav- 
ing their  use  subject  entirely  to  the  judgment  of  the  local  agent. 
The  propriety  of  their  use,  in  the  absence  of  any  fraud  in  the  mat- 
ter, could  not  afterwards  be  questioned  by  the  company.  Accom- 
panying these  receipts  was  a  notice,  printed  on  the  same  paper,  that 
policies  which  became  null  for  non-payment  might  be  renewed  at 
the  home  office,  within  a  reasonable  time,  upon  furnishing  satisfac- 
tory evidence  of  good  health,  such  satisfactory  evidence  being  left 
to  the  judgment  of  the  local  agent,  and  the  renewal  by  the  home 
office  consisting  of  a  receipt  signed  by  its  secretary,  transmitted  to 
such  agent,  to  be  used  when  countersigned  by  the  local  manager 
and  cashier.  It  was  the  habit  of  the  agent  to  give  such  renewal 
receipts  whenever  the  premiums  were  paid  after  the  time  stipulated; 
and  his  accounts  to  the  home  office  showed  such  subsequent  pay- 
ment. His  action  in  this  respect  was  not  questioned  by  the  com- 
pany;  and  the  premiums  were  retained  by  it  witliout  any  pretense 
that  the  policies  had  ceased  to  be  obligatory  for  want  of  punctuality 
in  their  payment.  The  mode  of  dealing  by  the  agent  with  persons 
taking  out  policies  at  the  local  office,  his  use  of  renewal  receipts,  his 
acceptance  of  premiums  after  the  day  on  which  they  were  payable, 
were  all  known  to  the  home  company,  and  its  retention  of  the  pre- 
miums thus  received  was  an  approval  of  his  acts.  So  far,  then,  as 
the  waiver  of  the  forfeiture  incurred  for  non-payment  of  the  pre- 
miums is  concerned,  it  is  clear  that  the  company,  by  its  course  of 
dealing,  had,  notwithstanding  the  provision  of  the  policy,  left  the 
matter  to  be  determined  by  the  local  agent,  to  whom  the  renewal 
receipts  were  intrusted. 

But,  so  far  as  the  forfeiture  arose  from  the  residence  of  the  insured 
within  the  prohibited  district,  the  case  is  different.  There  is  noth- 
ing in  the  acts  of  the  company  which  goes  to  show  that  it  ever 
authorized  its  agents  to  waive  a  forfeiture  thus  incurred,  or  that  it 
ever  knew  of  any  residence  of  the  insured  within  the  prohibited  dis- 
trict until  informed  of  his  death  there.  In  every  case  where  pre- 
miums were  received  after  the  day  they  were  payable,  the  fact  that 
a  forfeiture  had  been  incurred  was  made  known  to  the  company 
from  the  date  of  the  payment,  and  the  retention  of  the  money  consti- 
tuted a  waiver  of  the  forfeiture;  but  no  information  of  a  forfeiture 
on  any  other  ground  was  imparted  by  the  date  of  such  payment. 
The  agent  receiving  the  premium,  in  the  case  at  bar,  testified  that 
he  knew  nothing  of  the  residence  of  the  insured  within  the  pro- 
hibited district  during  the  excepted  period,  and  the  evidence  in 
conflict  with  his  testimony  was  slight.      He  knew  that   the  insured 


486  INSURANCE   AGliNlS. 

had  a  place  of  business  tliere,  and  that  he  was  permitted  to  make 
occasional  visits  there  within  that  period,  and  tu  reside  there  at  other 
times.  Everything  produced  as  evidence  of  knowledge  of  residence 
within  the  prescribed  district  is  consistent  witli  these  occasional 
visits  and  residence  at  other  times  than  during  the  excepted  period. 
But,  even  if  the  agent  knew  the  fact  of  residence  within  the 
excepted  period,  he  could  not  waive  the  forfeiture  thus  incurred, 
without  authority  from  the  company.  The  policy  declared  that  he 
was  not  authorized  to  waive  forfeitures;  and  to  the  provision  effect 
must  be  given,  except  so  far  as  the  subsequent  acts  of  the  company 
permitted  it  to  be  disregarded.  There  is  no  evidence  that  the  com- 
pany in  any  way,  directly  or  indirectly,  sanctioned  a  disregard  of 
the  provision  with  reference  to  any  forfeitures,  except  such  as 
occurred  from  non-payment  of  premiums.  As  soon  as  it  was 
informed  of  the  residence  of  the  insured  within  the  prohibited  dis- 
trict, it  directed  a  return  of  the  premium  subsequent!}'  paid.  It 
would  be  against  reason  to  give  to  the  receipt  of  the  premium  by 
the  agent,  under  the  circumstances  stated,  the  efficacy  claimed. 
The  court,  in  its  instructions,  treated  the  receipt  of  the  premium  by 
the  agent,  with  knowledge  of  the  previous  residence  of  the  insured 
within  the  prohibited  district,  if  the  agent  had  such  knowledge,  as 
itself  a  sufficient  waiver  of  the  forfeiture  incurred,  without  any  evi- 
dence of  the  action  of  the  company  when  informed  of  such  residence; 
and  in  this  respect  we  think  the  court  erred.  It  is  essential  that 
the  company  should  have  had  some  knowledge  of  the  forfeiture, 
before  it  can  be  held  to  have  waived  it. 

It  is  true,  that,  where  an  agent  is  charged  with  the  collection  of 
premiums  upon  policies,  it  will  be  presumed  that  he  informs  the 
company  of  any  circumstances  coming  to  his  knowledge  affecting 
its  liability;  and,  if  subsequently  the  premiums  are  received  by  the 
company  without  objection,  any  forfeiture  incurred  will  be  presumed 
to  be  waived.  But  here  there  was  no  ground  for  any  inference  of 
this  kind  from  the  subsequent  action  or  silence  of  the  company. 
There  was  no  evidence  of  a  disregard  of  the  condition  as  to  the  resi- 
dence of  the  insured  in  any  previous  year,  and,  consequently,  there 
could  be  no  inference  of  a  waiver  of  its  breach  from  a  subsequent 
retention  of  the  premium  paid.  This  is  a  case  where  immediate 
enforcement  of  the  forfeiture  incurred  was  directed  when  informa- 
tion was  received  that  the  condition  of  the  policy  in  that  respect  fiad 
been  broken.  Not  only  should  the  company  have  been  informed 
of  the  forfeiture  before  it  could  be  held  by  its  action  to  have  waived 
it,  but  it  should  also  have  been  informed  of  the  condition  of  the  health 
of  the  insured  at  the  time  the  premium  was  tendered,  upon  the  pav- 


INSURANCE   AGENTS.  487 

ment  of  which  the  waiver  is  claimed.  The  doctrine  of  waiver,  as 
asserted  against  insurarice  companies  to  avoid  the  strict  enforce- 
ment of  conditions  contained  in  their  policies,  is  only  another  name 
for  the  doctrine  of  estoppel,  It  can  only  be  invoked  where  the  con- 
duct of  the  companies  has  been  such  as  to  induce  action  in  reliance 
upon  it,  and  where  it  would  operate  as  a  fraud  upon  the  assured  if 
they  were  afterwards  allowed  to  disavow  their  conduct  and  enforce 
the  conditions.  To  a  just  application  of  this  doctrine  it  is  essential 
that  the  company  sought  to  be  estopped  from  denying  the  waiver 
claimed  should  be  apprised  of  all  the  facts;  of  those  which  create 
the  forfeiture,  and  of  those  which  will  necessarily  influence  its  judg- 
ment in  consenting  to  waive  it.  The  holder  of  the  policy  cannot  be 
permitted  to  conceal  from  the  company  an  important  fact,  like  that 
of  the  insured  being  ///  extremis,  and  then  to  claim  a  waiver  of  the 
forfeiture  created  by  the  act  which  brought  the  insured  to  that  con- 
dition. To  permit  such  concealment,  and  yet  give  to  the  action  of 
the  company  the  sam.e  effect  as  though  no  concealment  were  made, 
would  tend  to  sanction  a  fraud  on  the  part  of  the  policy-holder, 
instead  of  protecting  him  against  the  commission  of  one  by  the  com- 
pany. 

It  follows   that   the  judgment   m^-st  be   reversed,  and   the  cause 
remanded  for  a  new  trial;  and  it  is 

So  ordered. 


ERMENTROUT  et  al.  v.  GIRARD  FIRE  &  MARINE 

INS.  CO. 

63  Minn.  305.  —  1895. 

Appeal  by  plaintiffs  from  an  order  denyinga  motion  for  a  new  trial. 

Mitchell,  J.  — This  action  was  brought  on  a  policy  issued  by  the 
defendant  to  the  plaintiff  Ermentrout,  insuring  him,  to  the  amount 
of  $1,000,  for  one  year  "  against  all  direct  loss  or  damage  by  fire," 
on  his  "  brick,  iron-roof,  grain  warehouse  building,  and  bins 
therein,  including  foundations  and  all  permanent  fixtures,"  etc. 
The  only  other  provisions  of  the  policy  involved  on  this  appeal  are 
as  follows:  "  If  a  building  or  any  part  thereof  fall,  except  as  the 
result  of  fire,  all  insurance  by  this  policy  on  such  building  or  its  con- 
tents shall  immediately  cease."  "  If  fire  occur,  the  insured  shall 
give  immediate  notice  of  any  loss  thereby  in  writing  to  this  com 
pany."  "  The  simi  for  which  this  company  is  liable,  pursuant  to 
this  policy,  shall  be  payable  sixty  days  after  due  notice,  ascertain- 
ment, estimate,  and  satisfactory  proof  of  the  loss  have  been  received 


488  INSURANCE   AGENTS. 

by  this  company,  in  accordance  with  the  terms  of  this  policy." 
When  the  plaintiffs  rested,  the  defendant  moved  to  dismiss  the 
action,  for  the  reason  that  phiintiffs  had  failed  to  establish  their 
cause  of  action,  in  that —  First,  it  did  not  appear  that  the  loss  or 
damage  was  the  direct  result  of  fire;  second,  that  it  did  appear 
that  the  plaintiffs  had  not  given  immediate  notice  of  the  loss  in 
writing  to  the  company.  The  judge  granted  the  motion,  although 
placing  his  decision  exclusively  on  the  last  ground.  Of  course,  if 
the  action  should  have  been  dismissed  on  either  ground,  the  ruling 
of  the  court  must  be  affirmed. 

1.  [^  digt'sl  of  that  part  of  the  opinion  upon  the  first  point — falling 
building  —  is  given  herein,  ante,  p.  184.] 

2.  Seeley  &  Co.,  who  issued  the  policy,  were  the  local  agents  of  the 
defendant,  with  authority  "  to  receive  proposals  for  insurance  *  *  * 
within  the  county  of  Hennepin,  and  to  receive  premiums  thereon, 
and  to  give  receipts  and  issue  policies  therefor."  It  also  appeared 
that  these  agents  had  authority  to  accept  applications  for  insurance, 
fiv  the  premium  or  rate  of  insurance,  and  fill  up,  countersign,  and 
issue  policies  thereon,  which  they  received  from  the  company, 
signed  by  its  president  and  secretary.  So  far  as  appeared  from  the 
evidence,  this  was  the  extent  of  their  actual  authority,  and  there 
was  no  evidence  tending  to  show  that  their  apparent  authority  was 
other  or  g'^eater  than  their  actual  authority.  The  only  evidence  of 
the  giving  of  notice  of  loss,  except  the  sending  of  proofs  of  loss  to 
the  general  managers  of  the  defendant  at  Chicago  on  or  after 
October  9th  (received  by  them  on  or  about  October  23d),  was  to  the 
effect  that,  within  a  day  or  two  after  the  loss,  one  of  the  plaintiffs 
verbally  notified  Seeley  &  Co.  that  "  the  fire  had  destroyed  the 
building  "  Although  probably  not  material,  it  does  not  appear  that 
he  requested  Seeley  &  Co.,  to  give  or  forward  the  notice  to  the  com- 
pany, or  that  they  promised  to  do  so,  or  made  any  reply  to  the 
plaintiff.  As  the  loss  occurred  on  the  12th  of  August,  it  is  clear, 
under  the  authorities,  that,  as  a  matter  of  law,  the  time  for  giving 
notice  of  loss  had  expired  before  the  proofs  of  loss  were  sent  to 
Chicago.  It  is  also  settled  law  that,  where  the  policy  requires 
notice  of  loss  to  be  given  to  the  insurer  within  a  specified  time,  such 
notice  is  a  condition  precedent  to  the  right  of  action  on  the  policy. 
Hence,  for  their  right  of  recovery  on  the  policy,  the  plaintiffs  have 
to  rely  on  the  verbal  notice  given  to  Seeley  &  Co. 

If  Seeley  &  Co.  were  the  proper  parties  to  whom  to  give  this 
notice,  —  in  other  words,  if  it  was  within  the  scope  of  their  authority 
to  receive  notice  of  loss,  —  we  would  not  feel  any  doubt  but  that 
if,  when  they  received  verbal  notice,  they  made  no  objection  to  its 


INSURANCE   AGENTS.  489 

form,  they  would  be  deemed  to  have  waived  the  omission  to  give  it 
in  writing.  But  it  is  self-evident  that  if  they  had  no  authority  to 
receive  such  notice,  then  they  could  waive  nothing  in  the  matter. 
Upon  this  state  of  facts,  it  was  not  within  the  scope  of  the  authority 
of  Seeley  &  Co.  to  receive  or  wai^e  notice  of  loss,  and  hence  notice 
to  them  was  not  notice  to  the  company.  Even  if  there  could  be 
any  doubt  of  the  correctness  of  this  proposition  as  a  new  question, 
it  has  been  too  long  and  too  well  settled  in  this  State  to  be  now  con- 
sidered open.  Bowlin  v.  Insurance  Co.,  36  Minn.  433,  31  N.  W.  859; 
Shapiro  \.  Insurance  Co.,  51  Minn.  239,  53  N.  W.  463;  Shapiro  \. 
St.  Paul  F.  ^  M.  Ins.  Co.,  61  Minn.  135,  63  N.  W.  614.  But  we 
think  the  rule  is  correct  upon  both  principle  and  authority.  It  is  in 
accordance  with  the  general  principles  of  the  law  of  agency.  It  is 
elementary  that  a  principal  is  only  liable  for  acts  done  by  his  agent 
within  the  scope  01  the  authority,  actual  or  apparent,  with  which 
the  principal  has  clothed  him;  that  it  rests  entirely  with  the  princi- 
pal to  determine  the  extent  of  the  authority  which  he  will  give  to  his 
agent;  also,  that  every  person  dealing  with  an  assumed  agent  is 
bound,  at  his  peril,  to  ascertain  the  nature  and  extent  of  the  agent's 
authority. 

In  insurance  cases  courts  frequently  inaccurately  classify  agents 
as  "  local  "  and  "  general."  But  the  extent  of  the  territory  which 
is  to  be  the  field  of  his  agency  is  no  test  of  the  extent  of  an  agent's 
authority  within  that  field.  His  field  of  operations  may  include  the 
whole  United  States,  and  yet  his  powers  be  special  and  limited. 
On  the  other  hand,  his  field  of  operations  may  be  confined  to  a 
single  county  or  city,  and  yet  his  authority  within  that  field  be 
unlimited.  In  the  present  case  there  is  no  question  of  apparent,  as 
distinguished  from  actual,  authority.  The  question  is  simply  one  of 
actual  authority,  express  or  implied.  Authority  to  act  in  the  mat- 
ter of  a  loss  under  the  policy,  after  it  has  occurred,  is  not  expressly 
given.  All  the  authority  expressed  relates  to  the  making  of  the 
contract  of  insurance.  It  is  a  fundamental  principle  in  the  law  of 
agency  that  a  delegation  of  power,  unless  its  extent  be  otherwise 
expressly  limited,  carries  with  it,  as  a  necessary  incident,  tl^e  power 
to  do  all  those  things  which  are  reasonably  necessary  to  carry  into 
effect  the  main  power  expressly  conferred.  But  it  is  equally  funda- 
mental that  the  power  implied  shall  not  be  greater  than  that  fairly 
and  legitimately  warranted  by  the  facts;  in  other  words,  an  implied 
agency  is  not  to  be  extended  by  construction  beyond  the  obvious 
purpose  for  which  the  agency  was  created.  We  do  not  think  that 
mere  authority  to  make  a  contract  of  insurance  carries  with  it 
implied   authority  to  act  in   tne  matter  of  a  loss   under  the  policy 


490  INSURAN'CE   AGENTS. 

after  it  has  occurred.  If  the  implied  authoritj-  extends  to  accept- 
ing notice  of  the  loss,  it  would  logically  follow  that  it  also  extends  to 
proof  of  loss,  and  even  to  the  adjustment  of  the  loss,  — a  length 
to  which  no  court  has  ever  gone.  The  rule  which  we  have  adopted 
is  also  in  accordance  with  the  general  current  of  the  authorities. 
Lohiies  \.  Insurance  Co.,  127  Mass.  439;  Smith  \ .  I nsurance  Co.,  60 
Vt.  6S2,  15  Atl.  353;  Busli  V.  Insurance  Co.,  63  N.  Y.  531. 

Occasional  statements  in  some  of  the  text-books  seem  to  announce 
a  different  rule,  but  they  are  not  borne  out  by  the  authorities  cited 
in  their  support.  For  example,  in  Wood,  Ins.,  §  419,  it  is  stated 
that,  "  where  an  agent  is  intrusted  with  policies  signed  in  blank, 
an  J  is  authorized  to  issue  them  upon  the  application  of  parties  seek- 
ing insurance,  he  is  thereby  clothed  with  apparent  authority  to  bind 
the  party  in  reference  to  any  condition  of  the  contract,  whether 
precedent  or  subsequent,  and  may  waive  notice  of  proofs  of  loss, 
and  may  bind  the  company  by  his  admissions  in  respect  thereto." 
Upon  an  examination  of  the  large  number  of  authorities  cited  in 
support  of  the  text,  it  will  be  found  that  not  one  of  them  tends 
to  support  the  author's  proposition  as  to  proofs  of  loss,  unless  it  be 
the  nisi  prius  decision  in  Ide  v.  Insurance  Co.,  2  Biss.  2>Z2),  Fed.  Cas. 
No.  7,001,  in  which  the  question  is  not  discussed,  no  authorities 
cited,  and  the  statement  of  facts  so  meagre  that  it  cannot  be  ascer- 
tained what  the  evidence  was  as  to  the  actual  or  apparent  authority 
of  the  agent.  Most,  if  not  all,  of  the  other  cases  may  be  classified  as 
follows:  First.  Cases  holding  that,  where  an  agent  is  authorized 
to  make  the  contract  of  insurance  and  issue  the  policy,  the  com- 
pany is  bound  by  his  acts,  representations,  or  omissions  preceding 
or  accompanying  the  issuing  of  the  policy.  Considered  as  the  state- 
ment of  a  general  rule,  this  is  the  doctrine  of  all  courts.  Second. 
Cases  holding  that  authority  to  make  the  original  contract  of  insur- 
ance carries  with  it  implied  authority  to  modify  or  waive  any  of  its 
conditions  while  the  contract  is  still  current,  as  by  consenting  to 
other  insurance,  change  of  risk,  etc.  This  court  has  adopted  this 
general  rule,  althouh  some  courts  do  not  go  that  far.  Third.  Cases 
where  the  agent  had,  with  the  knowledge  of  the  company,  been  in 
the  habit  of  receiving  notices  of  loss,  proofs  of  loss,  and  adjust- 
ing losses,  and  it  had  thereby  clothed  him  with  apparent  authority 
to  do  these  things.  Fourth.  Cases  where  the  authority  of  the  agent 
to  do  the  particular  acts  was  admitted,  or  not  disputed,  and  the  only 
question  was  as  to  the  effect  of  his  acts,  as,  for  example,  whether 
they  constituted  a  waiver. 

3.  When  the  general  managers  received  the  proofs  of  loss  in 
October,  they  wrote  to  plaintiffs,  stating  that  they  were  in  receipt 


INSURANCE    AGENTS.  49I 

of  papers  purporting  to  be  proofs  of  loss,  but  adding:  "  This  is  to 
notify  you  that  we  deny  any  liability  under  said  policy  on  the  part 
of  this  company."  They  did  not,  however,  return  the  proofs  of 
loss.  If  the  question  was  one  of  the  sufficiency  of  the  proofs  of 
loss,  we  have  no  doubt  the  conduct  of  the  general  managers  would 
have  amounted  to  a  waiver  of  any  defect  in  them,  either  of  form  or 
substance.  But  this  did  not  amount  to  any  waiver  of  the  prior  fail- 
ure of  the  plaintiffs  to  give  notice  of  loss  as  required  by  the  terms 
of  the  policy.  It  will  be  observed  that  by  reason  of  this  prior  fail- 
ure the  policy  was  already  dead  when  the  proofs  of  loss  were 
received;  also,  that  in  this  letter  the  general  maiagersdid  not  place 
their  denial  of  liability  on  any  particular  ground,  but  denied  all 
liability  generally.  What  would  have  been  the  effect,  under  the  cir- 
cumstances, of  placing  their  denial  of  liability  upon  some  specific 
ground  other  than  the  failure  to  give  notice  of  loss  we  need  not 
inquire.  But  there  was  nothing  in  the  language  or  conduct  of  the 
general  managers  that  could  be  construed  as  a  waiver  of  plaintiffs' 
prior  failure  to  give  notice  of  the  loss,  by  reason  of  which  the  policy 
was  already  dead.  If  the  policy  had  been  still  alive,  and  the  plain- 
tiffs still  had  time  within  which  to  give  the  notice,  or  to  supply 
defects  in  one  already  given,  a  different  question  would  be  pre- 
sented, and  many  of  the  numerous  cases  cited  by  plaintiffs'  counsel 
would  have  been  in  point.  Our  conclusion  is  that  the  court  was 
right  in  dismissing  the  action,  on  the  ground  that  plaintiffs  had  failed 
to  give  notice  of  loss  as  required  by  the  policy.     Order  affirmed. 

Canty,  J.  —  I  concur  in  the  first  division  of  the  foregoing 
opinion,  but  not  in  the  second.  I  am  of  the  opinion  that  an  insur- 
ance agent  who  has  authority  "  to  receive  proposals  for  insurance," 
"  receive  premiums  thereon,"  "  fix  the  premiums  or  rate  of  insur- 
ance," and  "  fill  up,  countersign,  and  issue  policies  of  insurance," 
should  be  presumed  to  have  authority  to  receive  notice  of  loss,  at 
least  when  no  higher  local  authority  appears  to  exist.  Especially 
is  this  true  of  the  highest  local  representative  of  an  insurance  com- 
pany in  so  large  and  populous  a  county  as  Hennepin 

It  is  a  matter  of  common  knowledge  that  every  insurance  com- 
pany depends  largely  (though  perhaps  not  exclusively)  on  such 
agents  to  furnish  it  information  concerning  such  losses.  Every 
company  doing  a  considerable  amount  of  business  in  any  locality, 
especially  in  a  commercial  center  of  any  size,  must  have  and  always 
does  have  the  assistance  of  its  local  agent  in  ascertaining  the  facts 
concerning  the  loss,  just  as  much  as  they  have  his  assistance  in 
obtaining  business  or  determining  the  character  of  risks.  It  is  true 
that  an  adjuster  is  often  and  quite  usually  sent  to  examine  into  the 


492  INSURANCE   AGENTS. 

facts  and  adjust  the  loss,  but  it  is  almost  the  invariable  custom 
for  the  local  agent  to  furnish  the  company  all  the  facts  within  his 
knowledge,  and  all  the  facts  which  he  can  ascertain,  immediately 
after  he  learns  of  the  loss,  and  usually  long  before  the  adjuster 
comes  upon  the  ground.  Of  course  most  of  this  information  from 
the  agent  to  the  company  is  secret  and  confidential,  but  it  is  none  the 
less  within  the  scope  of  the  agent's  duties  to  furnish  it.  These 
are  things  that  everybody  knows,  and  what  everybody  knows  the 
courts  should  not  refuse  to  know.  These  are  duties  which  such 
agents  usually  perform.  It  should  be  presumed  that  such  duties  are 
within  the  scope  of  their  authority,  and  if  so  it  should  be  presumed 
that  they  ha^'e  authority  to  receive  information  of  such  a  loss  from 
the  insured  and  transmit  it  to  the  company,  and  that  when  such 
information  is  so  received  it  is  their  duty  so  to  transmit  it. 

As  far  as  concerns  the  authority  of  such  agents  generally,  there 
is  no  clear  or  well-defined  line  drawn  between  matters  arising  in 
connection  with  or  accompanying  the  making  of  the  policy  and 
other  matters,  except  as  that  line  is  being  drawn  by  some  of  the 
courts.  The  line  which  the  companies  themselves  have  always 
drawn  is  the  line  between  the  right  to  receive  and  retain  premiums 
and  the  right  to  refuse  to  pay  losses.  They  always  admit  that  their 
agents  have  authority  to  receive  such  premiums,  and  always  deny 
that  these  agents  have  any  authority  to  waive  any  forfeiture  what- 
ever, whether  arising  before  or  after  loss,  whether  arising  in  con- 
nection with  the  issuing  of  the  policy  or  in  connection  with  the 
giving  notice  of  loss.  I  am  of  the  opinion  that  notice  to  the  local 
agent  was  sufficient  notice  of  loss,  and  that  the  retention  by  the 
company  of  the  proof  of  loss  subsequently  sent  it,  tended  to  prove 
waiver  of  prior  conditions,  as  well  as  performance  of  the  condition 
requiring  such  proof  of  loss. 


CRITCHETT  v.   AMERICAN  INSURANCE  CO, 

53  Ia.  404.  —  1880. 

Action  upon  a  policy  of  insurance.  The  defendant  alleges  that 
the  plaintiff  was  in  default  at  the  time  of  the  loss  by  reason  of  the 
non-payment  of  an  instalment  of  the  premium.  For  a  portion  of 
the  premium  the  company  had  taken  the  plaintiff's  note,  whereby  he 
had  obligated  himself  to  pay  the  company  three  dollars  upon  the 
first  day  of  November,  1876,  and  the  same  amount  upon  the  first 
day  of  November  in  each  of  the  three  succeeding  years.     The  policy 


INSURANCE    AGENTS.  493 

contained'  a  provision  in  these  words:  "  If  default  shall  be 
made  by  the  assured  in  the  payment  of  any  instalment  of  premium 
upon  the  instalment  note  given  for  this  policy  for  the  space  of  thirty 
days  after  such  instalment  shall  beco^ne  due,  by  the  terms  of 
such  note,  then  this  policy  shall  be  null  and  void,  and  this  company 
shall  not  be  liable  to  pay  any  loss  happening  during  the  continuance 
of  such  default  in  payment  of  such  instalment;  but  on  payment  by 
the  assured  or  his  assigns  of  all  instalments  of  premium  due  under 
this  policy,  or  upon  the  instalment  note  given  therefor,  the  liability 
of  the  company  under  the  policy  shall  attach,  and  this  policy  be  in 
force  as  to  all  the  losses  happening  after  such  payment,  unless  it 
shall  be  inoperative  from  some  other  cause."  The  instalment  fall- 
ing due  Nov.  I,  1876,  was  not  paid.  The  loss  occurred  March  9, 
1877.  There  was  a  trial  by  jury,  and  verdict  and  judgment  were 
rendered  for  the  plaintiff.     The  defendant  appeals. 

Adams,  Ch.  J.  — The  plaintiff  claims  that  he  was  not  in  default 
at  the  time  the  loss  occurred,  notwithstanding  the  non-payment  of 
the  instalment,  which,  by  the  terms  of  his  note,  fell  due  on  the  first 
day  of -November,  1876.  He  claims  that  the  company  had  extended 
the  time  of  payment.  As  evidence  of  such  extension  he  testified 
that  one  Kennedy,  the  agent  of  the  company  at  Oskaloosa,  near 
where  he  resided,  agreed  with  him  after  the  instalment  became  due 
to  extend  the  time  of  payment  until  he  (plaintiff)  shoulJ  receive  a 
certain  pension;  that  he  received  his  pension  March  8,  1877,  and  on 
the  same  day  went  to  Kennedy's  ofifice  to  pay  the  instalment  due 
upon  his  insurance  note,  but  did  not  find  him,  and  on  the  next  day, 
about  4  o'clock  in  the  afternoon,  the  property  insured  was  destroyed 
by  fire. 

The  defendant  denies  that  any  agreement  for  extension  was  made 
between  the  plaintiff  and  Kennedy  and  introduced  Kennedy  as  a 
witness  who  testified  that  none  was  made.  Upon  this  point  the 
jury  found  against  the  defendant,  and  the  evidence  being  conflict- 
ing, their  finding  must  be  taken  as  conclusive.  But  the  defendant 
insists  that  conceding  that  Kennedy  agreed  to  an  extension  the 
defendant  would  not  be  bound  by  it,  because  Kennedy  had  no 
authority  to  bind  the  company  in  that  respect,  and  further,  if  he 
had,  that  the  plaintiff  cannot  recover,  because  the  loss  occurred 
after  the  time  as  extended,  and  the  plaintiff  had  not' paid  even  then. 
Kennedy's  authority  was  shown  by  the  certificate  of  his  appoint- 
ment introduced  in  evidence.  From  it,  it  appears  that  he  was 
authorized  to  receive  applications  for  insurance,  and  collect  and 
transmit  premiums.  Kennedy  testified  that  he  was  not  authorized 
to  issue  policies,  and  it  is  not  pretended  that  he  was.     The  court 


494  IXSU RANGE    AGENTS. 

instructed  the  jury,  in  substance,  that  the  plaintiff  would  be  entitled 
to  recover  if  they  found  that  Kennedy  agreed  to  extend  the  time  of 
payment,  and  that  the  loss  occurred  within  such  time.  The  giving 
of  this  instruction  is  assigned  as  error. 

According  to  the  terms  of  the  policy,  the  company  ceased  to 
carry  the  risk  at  the  end  of  thirty  days  from  the  time  the  instalment 
became  due.  If  the  company  continued  to  carry  it,  it  was  by  rea- 
son of  a  contract  not  contained  in  the  policy,  and  that  contract 
mast  have  been  the  allege  J  contract  with  Kennedy.  Now,  what 
precisely  was  that  contract,  taking  the  plaintiff's  statement  as  to 
what  it  was?  He  says:  "  He  (Kennedy)  agreed  he  would  give  me 
time  to  get  my  pension."  From  this  it  will  be  seen  that  Kennedy 
ditl  not  undertake  to  contract  that  the  company  would,  without  pay- 
ment, continue  to  carry  the  risk  after  it  had  ceased  by  the  terms  of 
the  policy.  It  is  doubtful,  indeed,  whether  he  even  meant  to  bmd  the 
company  not  to  enforce  payment  of  the  instalment  before  plaintiff 
could  get  his  pension.  The  words  do  not  necessarily  mean  more 
than  that  he  would  not  himself  enforce  it.  But  we  are  of  the  opin- 
ion that  if  Kennedy  had  expressly  contracted  that  the  company 
should  carry  the  risk  without  payment  after  it  had  ceased  by  the 
terms  of  the  policy,  such  contract  would  not  have  bound  the  com- 
pany. There  is  no  pretense  that  Kennedy  had  any  express  authority 
to  bind  the  company  by  any  contract  whatever.  He  belonged  to 
an  extensive  and  well  recognized  class  of  insurance  agents  from 
whom  the  power  to  make  contracts  is  withheld.  If  he  had  the  power 
to  contract  in  the  name  of  the  company  to  carry  the  risk  without 
payment  after  it  had  ceased  by  the  terms  of  the  policy,  it  is  because 
the  law  would  imply  such  power  from  the  fact  that  he  was  author- 
ized to  collect  and  transmit  premiums.  But  an  agent  employed  to 
collect  a  claim  does  not  thereby  have  authority  to  bind  his  principal 
even  to  grant  an  extension  of  time.  Hutc/iings  v.  Munger,  41  N.  Y. 
155;  Kirk  V.  Hiatt,  2  Carter  (Ind.)  2,22,',  Corning  v.  Strong,  i  Carter 
(Ind.)  329.  Still  less  would  such  agent  have  authority  to  bind  his 
principal  by  a  contract  of  insurance.  We  have  seen  no  case  where 
the  doctrine  contended  for  by  the  plaintiff  has  been  held.  We  do 
not  say  that  where  a  policy  is  delivered  by  an  agent  without  the 
prepayment  of  the  premium  it  will  not  take  effect  even  though  the 
agent  have  no  authority  to  pass  upon  and  accept  the  risk,  even 
though  the  policy  provides  that  it  shall  not  take  elect  unless  the 
premium  is  prepaid.  Where  an  agent  is  intrusted  with  a  policy  for 
the  purpose  of  delivering  it,  and  does  deliver  it,  though  in  violation 
of  a  provision  of  the  policy  as  to  prepavment,  it  has  been  held  that 
the  assured  has  a  right  to  assume  that  prepayment  has  been  waived. 


INSURANCE   AGENTS.  495 

i'v/z/i,--  V.  Hartford  Fire  Ins.  Co.,  45  Iowa,  377;  Boiainan  v.  Agri- 
iuliural  Ins.  Co.,  59  N.  Y.  521;  Mississippi  Valley  Ins.  Co.  v.  N'eyland, 
9  Bush.  430;   Sheldon  v.  Conn.  J/u.  Ins.  Co.,  25  Conn.  9. 

But  the  vvaiver  rests  not  simply  upon  something  said  by  the  agent 
which  could  be  construed  into  an  agreement  of  waiver  but  upon 
something  done  by  the  agent  which  he  v/as  employed  to  do.  The 
authorities  all  agree  that  a  mere  agreement  to  waive  prepayment 
will  not  put  a  policy  in  force  where  it  is  not  delivered.  It  is  there- 
fore the  delivery  of  the  policy  which  constitutes  the  ground  of 
waiver.  It  is  true  that  in  Hallock  v.  Commercial  Insurance  Co.,  2 
Dutcher,  268,  a  recovery  was  allowed  although  the  premium  had 
not  been  paid  nor  the  policy  delivered.  But  the  agreement  for  the 
insurance  had  been  made  and  the  premium  tendered,  which  the  agent 
declined  to  receive  because  the  policy  was  not  made  out.  In  Trus- 
tees of  Baptist  Church  v.  Brooklyn  Ins.  Co.,  19  N.  Y.  305,  there  was  a 
parol  contract  for  a  renewal,  but  no  payment  of  the  premium.  It 
was  held  that  the  plaintiff  was  entitled  to  recover.  That  case  was 
substantially  like  the  case  at  bar,  except  that  the  contract  was 
made  by  the  officers  of  the  company  and  not  by  an  agent.  The  prin- 
ciple decided,  therefore,  was  materially  different.  Nor  does  the 
case  at  bar  come  within  the  rule  held  in  Viele  v.  Germania  Ins.  Co  , 
26  Iowa,  9.  That  was  a  case  where  the  risk  was  increased  by  the 
act  of  the  assured  contrary  to  the  provisions  of  the  policy.  It 
appeared,  however,  that  the  agent  assented  to  the  use  of  the  premises 
by  reason  of  which  the  risk  was  increased.  Such  assent  was  held  to 
be  a  waiver  of  the  forfeiture.  The  doctrine  of  that  case  is  unques- 
tionably correct,  but  it  rests  upon  the  fact  that  the  agent  is  made 
the  judge  as  to  whether  a  given  use  is  an  increase  of  risk  or  not. 
Mr.  Justice  Beck,  who  wrote  the  opinion,  said:  "  The  agent  is 
charged,  by  the  terms  of  the  policy  on  which  the  suit  is  based,  with 
the  power  to  determine  whether  the  risk  is  increased.  If  he  so 
determines  he  may  cancel  the  policy  and  put  an  end  to  the  con- 
tract. This  involves  the  necessity  of  examination  of  the  condition 
of  the  insured  property  during  the  life  of  the  policy,  and  constant 
watchfulness  to  protect  the  interest  of  the  underwriters.  If  he 
determines  that  the  risk  is  increased  such  determination  is  final. 
Such  being  the  great  and  extraordinary  powers  of  the  agent,  it  fol- 
lows that  he  is  clothed  with  the  power  to  dispense  with  conditions 
and  waive  the  effect  of  breaches  thereof  in  contracts  of  insurance 
made  by  him.  If  he  can  determine  that  the  conditions  of  the  con- 
tract have  been  broken,  surely  he  can  also  determine  that  they  have 
not  been  broken." 

In  our  opinion  there  is  nothing  in  this  doctrine  that  affords  sup- 


4g6  INSURANCE   AGENTS. 

port  to  the  proposition  that  an  agent  who  has  not  the  power  to  make 
the  contract  of  insurance  can  bind  the  company  by  his  contract  to 
an  indefinite  postponement  of  the  payment  of  a  renewal  premium, 
and  keep  the  policy  in  force  in  contravention  of  its  provisions.  In 
Bouton  V.  The  American  Mutual  Life  Insurance  Company,  25  Conn. 
542,  the  premium  was  actually  paid  to  the  agent,  though  after  the 
day  it  fell  due.  It  was  held  that  though  the  agent  had  power  to 
make  the  contract  of  insurance,  and  had  power  to  receive  the  pre- 
mium when  due,  he  had  no  power  without  an  express  authorization 
to  bind  the  company  by  receiving  it  after  it  was  due.  Substantially 
the  same  doctrine  was  held  by  implication  in  Insurance  Company  v. 
Xorton,  96  U.  S.  234.  In  that  case  a  recovery  was  allowed  wheie 
the  agent  had  extended  the  time  of  payment  of  premium,  but  the 
right  of  recovery  was  made  to  turn  upon  the  ground  that  the  jury 
was  justifi^J  in  inferring  from  the  practice  of  the  company  an 
express  authorization  of  the  agent  to  extend  the  time  of  payment. 
There  was  no  pretense  that  the  agent  by  virtue  of  his  power  to 
make  the  contract  of  insurance  and  collect  premiums  could  extend 
the  time  of  payment.  It  is  not  uncommon,  we  think,  for  agents  to 
keep  a  policy  in  force  after  a  renewal  premium  becomes  due,  with- 
out actual  payment  by  the  assured.  The  agent  sometimes  credits 
the  assured  or  issues  a  receipt  to  him  without  payment  by  him,  the 
understanding  being  that  the  agent  becomes  personally  liable  to  the 
company,  and  the  assured  to  the  agent.  In  such  case  as  between 
the  assured  and  the  company  the  premium  is  regarded  as  paid.  See 
Flanders  on  Insurance,  page  164,  and  cases  cited. 

There  is  a  class  of  cases  where  a  receipt  of  premium  by  an  agent 
paid  when  due  has  been  held  to  be  a  waiver  of  a  forfeiture  incurred 
by  a  violation  of  a  condition  of  the  policy.  See  Walsh  v.  .-Etna  Life 
Insurance  Compatiy,  30  Iowa,  133,  and  cases  cited.  But  where  an 
agent  who  is  authorized  to  receive  premiums  receives  a  premium 
paid  when  due,  he  is  acting  within  the  scope  of  his  general  authority. 
The  assured  has  a  right  to  suppose  that  the  payment  is  valid;  that 
it  becomes  a  payment  to  the  company;  that  the  company  by  receiv- 
ing it,  if  it  receives  it  w'ith  knowledge  of  the  forfeiture,  waives  the 
forfeiture.  We  have  been  unable  to  discover  any  rule  in  the  law  of 
insurance  which  would  justify  us  in  holding  that  an  agent  can  bind 
the  company  by  his  consent  of  a  postponement  of  a  payment  of  a 
renewal  premium,  and  keep  a  policy  in  force  contrary  to  its  pro- 
visions, unless  he  is  expressly  authorized  to  do  so. 

It  has  been  suggested  that  Kennedy's  authority  to  receive  pay- 
ment of  premiums  should  be  deemed  to  include  the  authority  to 
bind   the   company  to  carry  the  risk   without  payment,  becaus*:;   it 


INSURANCE   AGENTS.  497 

might  be  for  the  interest  of  the  company  to  do  so.  But  authority 
to  an  agent  to  do  one  thing  does  not  include,  by  impHcation,  an 
authority  to  do  another  thing  merely  because  it  might  be  for  the 
interest  of  the  principal  to  do  the  other  thing.  An  agent  has 
implied  authority  to  employ  the  usual  and  necessary  means  to  accom- 
plish what  he  is  expressly  authorized  to  do.  In  the  case  at  bar  the 
carrying  of  the  risk  without  payment  of  the  premium  was  not  neces- 
sary to  enable  the  company  to  collect  the  premium;  that  was  collec- 
tible without  any  new  contract  or  consideration.  In  no  view,  then, 
did  Kennedy  have  the  implied  power  to  make  the  contract  relied  upon. 

In  our  opinion  the  rule  contended  for  by  plaintiff  would  have 
a  tendency  to  impair  the  value  of  all  insurance,  both  fire  and  life. 
If  insurance  agents  can  grant  a  valid  extension  of  the  payment  of 
renewal  premiums  for  a  few  months,  as  in  this  case,  while  the  risk 
continues,  they  can  grant  such  extension  for  a  few  years,  or  such 
length  of  time  as  the  policy  can  be  renewed.  No  company  under 
such  rule  would  be  safe.  Liabilities  would  constantly  tend  to 
become  disproportionate  to  available  resources.  The  interests  bound 
up  in  insurance  are  too  important  to  be  thus  jeopardized. 

The  foregoing  considerations  dispose  of  the  case  without  regard 
to  the  fact  that  the  loss  occurred  one  day  after  the  alleged  exten- 
sion had  expired.  The  evidence  was  not  such  as  to  justify  the 
instruction  given,  nor  the  verdict  rendered. 

Reversed. 

Beck,  J.,  dissenting.  —  The  policy  in  the  case  insured  the  propertj' 
for  five  years,  the  term  to  end  November  12,  1880.  The  premiums 
were  payable  annually,  the  first  being  paid  when  the  policy  was 
issued,  and  the  others  secured  by  a  promissory  note  payable  in 
instalments  of  equal  sums  on  the  12th  day  of  November  of  each  sub- 
sequent year.  The  whole  of  the  condition  of  the  policy  touching 
the  effect  of  non-payment  of  these  instalments  is  not  set  out  in  the 
opinion  of  the  majority  of  the  court  The  part  omitted  follows 
what  is  quoted  in  that  opinion.  I  here  present  it:  "  When  a  promis- 
sory note  is  given  by  the  assured  for  the  cash  premium  it  shall  be 
considered  a  payment  of  such  premium,  provided  such  note  is  paid 
at  or  before  maturity,  but  if  such  note,  or  any  part  thereof,  shall 
remain  unpaid  and  past  due  more  than  thirty  days  at  the  time  of  any 
loss  or  damage,  then  this  company  shall  not  be  liable  to  pay  such 
loss  or  damages  happening  during  such  default,  and  no  attempt  to 
collect  such  note  or  any  instalment  of  premium  upon  the  instalment 
note  aforesaid,  whether  by  legal  process  or  otherwise,  shall  be 
deemed  a  waiver  of  any  of  the  conditions  of  this  policy,  or  have  the 
effect  to  renew  the  policy;  but  upon  payment  by  the  assured  of  the 

LAW  OF  INSURANCE  —  ^2 


498  INSURANCE   AGENTS. 

full  amount  of  such  note  or  instalment,  as  the  case  may  be,  and  all 
costs  that  may  have  accrued,  then  this  policy  shall  be  in  force  as  to 
losses  happening  thereafter,  unless  inoperative  or  void  from  some 
other  cause." 

The  agent  who,  as  plaintiff  claims,  extended  the  time  of  payment, 
was  expressly  empowered  by  the  defendant  to  collect  and  remit  the 
premium  due  upon  notes  of  the  kind  given  by  plaintiff. 

The  case  presents  this  state  of  facts:  The  policy  was  an  existing 
contract  at  the  time  of  the  destruction  of  the  plaintiff's  property. 
But  on  account  of  the  failure  of  plaintiff  to  pay  an  instalment  of  the 
note  which  had  fallen  due,  the  contract  could  not  be  enforced 
against  defendant  if  the  breach  of  the  condition  were  interposed  as 
a  defense.  The  contract  had  not  ceased  to  exist;  it  was  binding 
upon  the  parties,  and  defendant  would  become  again  liable  thereon 
upon  payment  of  the  premiums.  The  case  does  not,  therefore, 
require  us  to  determine  whether  the  agent  was  authorized  to  enter 
into  a  contract  of  insurance.  It  is  not  claimed  that  his  acts  had 
that  effect;  nor,  indeed,  did  the  agent  in  the  act  of  giving  plaintiff 
time  upon  his  note  make  any  contract  for  the  company.  The  whole 
contract  between  the  parties  is  embodied  in  the  policy.  But  by 
extending  the  time  of  payment  the  agent  dispensed  with  the  strict 
performance  of  the  contract  of  the  plaintiff  to  pay  the  premium  on 
the  day  stipulated.  The  opinion  of  the  majority  of  the  court,  I 
understand,  concedes  that  if  the  agent  did  extend  the  time  of  pay- 
ment, and  had  authority  to  do  so,  his  act  would  operate  as  a  dispen- 
sation of  the  condition  of  the  policy  and  operate  as  a  waiver  of  the 
forfeiture  resulting  from  the  non-payment.  The  only  question, 
then,  to  be  determined  involves  the  power  of  the  agent  to  make  an 
arrangement  with  the  plaintiff  that  he  should  have  further  tims  for 
the  payment  of  the  instalment  then  due  or  about  to  fall  due. 

The  agent  was  authorized  to  collect  the  premiums.  It  cannot  be 
doubted  that  if  the  plaintiff  had  paid  to  the  agent  the  premium  after 
default,  the  policy  would  have  again  attached.  The  agent  could 
have  enforced  the  payment  under  the  terms  of  the  policy.  Thus  far 
he  was  clothed  with  authority,  upon  the  exercise  of  which,  at  his 
discretion,  depended  the  binding  force  of  the  policy.  His  authority 
to  collect  the  premium  could  be  exercised  in  such  a  manner  and  at 
such  times  as  the  interest  of  the  defendant  determined  by  the  agent 
required.  Surely,  the  authority  to  collect  the  premium  was  not  so 
limited  that  it  could  not  have  been  exercised  after  default  by  plain- 
tiff. It  follows  that  the  agent,  before  default,  could  arrange  with 
the  plaintiff  to  extend  the  time  in  the  evercise  of  his  authority  to 
collect,  or,  in  other  words,  could  extend  the  time  for  payment. 


INSURANCE   AGENTS.  499 

It  is  not  necessary  to  hold  that  the  agent  had  authority  to  enter 
into  a  contract  for  the  extension  of  the  time  upon  the  note.  This 
would  require  authority  to  make  a  new  contract  under  which  the 
old  contract  would  be  modified.  But  the  extension  of  indulgence 
to  the  plaintiff  under  an  agreement  that  the  insured  shall  not  be 
prejudiced  by  delay  is  quite  a  different  thing.  I  will  illustrate  this 
point  by  a  supposed  case.  A.  enters  into  a  contract  for  the  sale  of 
lands  to  B.,  payment  to  be  made  upon  a  specified  day,  the  time  of 
payment  being  of  the  essence  of  the  contract.  The  note  given  by 
B.  to  secure  the  purchase  money  is  placed  in  the  hands  of  C.  for 
collection,  who  agrees  with  B.  that  indulgence  shall  be  extended  for 
a  time  agreed  upon.  In  such  a  case  the  condition  as  to  time  is 
waived.  The  agent's  power  to  collect  the  money  was  exercised  in 
granting  indulgence.  I  know  of  no  reason  why  the  same  doctrine 
should  not  apply  to  policies  of  insurance.  It  is  based  upon  the 
plainest  reasons.  Parties  to  a  contract  should  not  be  enabled  to  lay 
ambuscades  and  pitfalls  for  one  another;  they  should  not,  by  pro- 
fessions of  kindness  and  indulgence,  induce  the  violation  of  the  con- 
tract, and  then  take  advantage  of  the  default.  The  agent  of  defend- 
ant in  this  case  was  authorized  to  collect  the  premium;  there  was 
no  limitation  upon  this  authority.  He,  therefore,  could,  in  the 
exercise  of  his  authority,  do  all  acts  that  could  have  been  done  by 
his  principal  in  collecting  the  premium.  He  could  grant  indulgence 
and  delay  in  the  exercise  of  his  authority.  As  I  have  said,  the 
agent  made  no  new  contract;  his  act  in  granting  indulgence  does 
not  demand  the  exercise  of  authority  to  make  a  new  contract. 

My  brothers  in  the  foregoing  opinion  express  the  thought  that  the 
agent  could  not  grant  indulgence,  unless  he  had  the  authority  to 
enter  into  a  contract  of  insurance.  They  think  that  the  time  for 
the  payment  of  premiums  can  only  be  extended  by  insurance  agents 
when  they  deliver  the  policy,  or  do  some  other  act  required  in  the 
execution  of  the  contract.  That  agents  possessing  such  authority, 
and  under  such  circumstances  may  waive  conditions  as  to  the  time 
of  payment,  does  not  support  the  conclusion  that  indulgence,  or,  if 
you  please,  extension  of  time,  may  not  be  granted  by  an  agent 
employed  to  collect  premiums  after  the  policy  has  attached.  In  my 
opinion  the  time  at  which  an  agent  may  perform  acts  under  his 
authority,  if  not  prescribed  by  the  principal,  rests  in  his  discretion, 
to  be  exercised  for  the  interest  of  the  principal.  The  agent  of 
defendant  was  authorized  to  collect  the  premium;  he  determined 
that  he  would  not  collect  it  or  demand  its  payment  until  plaintiff 
received  his  pension,  and  so  informed  plaintiff,  who,  relying  upon 
the  arrangement,   did  not  pay  the  premium  before   his  house  was 


50O  INSURANXE    AGENTS. 

burned.  As  the  act  of  the  agent  in  extending  the  time  of  payment 
was  done  in  the  exercise  of  authorit}'  to  collect  the  premium,  the 
defendant  is  estopped  to  enforce  the  forfeiture  for  the  non-payment 
of  the  instalment.  The  conclusion  I  reach  that  the  payment  of  the 
instalment  on  the  day  it  fell  due  was  dispensed  with,  and  the  for- 
feiture waived  by  the  act  of  the  agent  in  extending  the  time  of  pay- 
ment is  supported  by  the  following  authorities:  Viele  v.  Germania 
Insurance  Company^  26  Iowa,  9;  Walsh  v.  The  yEtna  Life  Insurance 
Company,  30  Id.  133;  Young  &"  Co.  v.  Hartford  Fire  Insurance  Com- 
pany, 45  Id.  377;  Insurance  Company  v.  Norton,  96  U.  S.  234;  Mis- 
sissippi Valley  Life  Insurance  Company  v.  N'eyland,  9  Bush,  430; 
Sheldon  v.  Connecticut  Mutual  life  Insurance  Company,  25  Conn.  207; 
Bouton  V.  American  Mutual  Life  Insurance  Company,  25  Conn  542; 
Trustees  of  Baptist  Church  v.  Brooklyn  Insurance  Company,  19  N.  Y. 
305;  Bowman  \.  Agricultural  Insurance  Company,  59  N.  Y.  521;  Hal- 
lock  V.  Cofnmercial  Insurance  Company,  2  Dutcher,  268. 

In   my  opinion  the  judgment  of  the   District  Court  ought  to  be 
affirmed. 


2.    Broker.' 


Marshall,  J.,  in  JOHN  R.  DAVIS  LUMBER  CO.  v.  HART- 
FORD  FIRE  INS.  CO. 

95  Wis.  226,  233.  —  1897. 

What  the  powers  of  an  insurance  broker  are  can  hardly  be  a  sub- 
ject for  serious  controversy.  He  is  the  agent  for  the  assured, 
according  to  all  authorities  on  the  subject,  though  at  the  same  time, 
for  some  purposes,  he  may  be  the  agent  for  the  insurer,  and  his  acts 
and  representations  within  the  scope  of  his  authority  as  such  agent 
are  binding  upon  the  assured.  Mechem,  Agency,  §  931;  Hartford 
F.  Ins.  Co.  V.  Reynolds,  36  Mich.  502;  Standard  Oil  Co.  v.  Triumph 
Ins.  Co.,  64  N.  Y.  85;  Hamhlet  v.  City  Ins.  Co.,  36  Fed.  Rep.  118; 
May,  Ins.,  §  124  A.  Says  Mr.  Justice  Page,  in  Am.  F.  Ins.  Co.  v. 
Brooks,  83  Md.  22,  34  Atl.  Rep.  373:  "  It  appears  to  be  well  settled 
that  where  one  engages  another  to  procure  insurance,  the  person  so 
employed  is  agent  for  the  insured,  and  not  for  the  insurer,  in  all 
matters  connected  with  such  procurement."  Questions  involving 
the  scope  of  the  powers  of  an  insurance  broker  to  represent  the 
insured  arise  most  frequently  where  notice  of  cancellation  is  served 
by   the   insurer  on   such   broker,    when   the   contract   of   insurance 

'  See  also  Arff  s.  Ins.  Co.,  post,  p.  503. 


INSURANCE   AGENTS.  5OI 

requires  it  to  be  served  upon  the  insured.  In  such  cases  the  ques- 
tion turns  on  whether  the  employment  of  the  broker  extended 
beyond  the  mere  procurement  of  the  insurance.  If  not,  it  is  held 
that  his  agency  ceased  upon  the  delivery  and  acceptance  of  the 
policy,  so  that  service  of  notice  of  cancellation  on  him  was  ineffectual 
Kehler,  v.  Ncio  Orleans  his.  Co.,  2^  Fed.  Rep.  709;  Franklin  Ins.  Co. 
V.  Sears,  21  Fed.  Rep.  290;  Body  v.  Hartford  F.  Ins.  Co.,  63  Wis. 
157;  Hermann  v.  Niagara  Ins.  Co.,  100  N.  Y.  411 ;  Grace  v.  Am.  Cent. 
Ins.  Co.,  109  U.  S.  278;  Broadzvater  v.  lion  F.  Ins.  Co.,  34  Minn. 
465;  W7iite  v.  Con/i.  F.  Ins.  Co  ,  120  Mass.  330;  Indiana  Ins.  Co.  v. 
Hartwell,  100  Ind.  566.  But  the  broker  may  be  so  clothed  with 
authority  as  to  have  full  power  to  act  for  the  insured  in  cancelling, 
as  well  as  procuring,  policies.  Standard  Oil  Co.  v.  Triumph  Ins.  Co., 
supra;  Hartford  F.  Ins.  Co.  v.  Reynolds,  supra.  In  all  cases  the 
familiar  rule  respecting  the  relation  of  principal  and  agent  applies, 
that,  within  the  scope  of  his  authority  to  procure  insurance,  he 
stands  in  the  place  of  the  principal,  and  the  latter  is  bound  by  what- 
ever, within  such  scope,  such  agent  may  do,  to  the  same  extent  as 
if  it  were  done  by  such  principal. 


3.   Adjuster. 

SMALDONE  v.  INS.  CO.  OF  NORTH  AMERICA. 

162  N.  Y.  580.  —  1900. 

Appeal  from  a  judgment  of  the  Appellate  Division  of  the  Supreme 
Court,  in  the  Third  Judicial  Department,  entered  December  10, 
1S97,  affirming  a  judgment  in  favor  of  plaintiff  entered  upon  a 
verdict,  and  an  order  denying  a  motion  for  a  new  trial. 

CuLLEN,  J.  — The  action  is  brought  on  a  standard  fire  insurance 
policy,  and  the  only  question  raised  on  this  appeal  is  as  to  the  power 
of  an  agent  sent  by  the  defendant  to  adjust  the  loss  to  waive  the 
provision  of  the  policy  requiring  the  service  of  proofs  of  loss.  This 
agent  was  not  only  authorized  to  adjust  the  amount  of  the  loss,  but, 
as  appears  by  his  own  testimony,  was  empowered  to  negotiate  any 
settlement  of  the  claim  of  the  insured  on  the  policy  and  to  pay  and 
discharge  such  claim.  Shortly  after  the  occurrence  of  the  fire,  and 
before  the  expiration  of  the  time  within  which  it  was  necessary  to 
serve  the  proofs  of  loss,  the  agent,  in  his  negotiations  with  the 
plaintiff's  assignor  and  his  attorney,  absolutely  repudiated  any  lia- 
bility on  the  part  of  the  defendant,  claiming  that  the  premises  insured 


502  INSURANCE   AGENTS. 

were  vacant  in  contravention  uf  the  terms  of  the  policy,  though  he 
seems  to  have  been  willing  to  have  settled  with  the  insured  if  he 
could  do  so  for  a  sufficiently  small  sum.  The  parties  couid  not  agree 
on  the  amount  to  be  paid,  when,  as  testified  by  the  plaintiff's  wit- 
nesses and  as  found  by  the  jury,  the  agent  told  the  attorney  for  the 
insured  that  he  did  not  want  him  to  file  proofs  of  loss  or  have 
appraisers  appointed,  but  that  he  mig!u  "  go  on  and  sue  as  soon  as 
you  wish  to."  The  defendant  requested  the  court  to  instruct  the 
jury  that  the  agent  had  no  power  to  waive  the  requirement  for 
service  of  the  proofs  of  loss  unless  it  was  indorsed  upon  the  policy. 
This  request  was  refused  and  the  court  charged  the  jury  that  if  the 
agent  waived  the  service  of  the  proofs  of  loss  and  the  appointment 
of  appraisers,  his  act  bound  the  defendant. 

We  think  that  this  ruling  of  the  trial  court  was  correct.  It  is  not 
necessary  to  review  the  many  cases  to  be  found  in  this  State  on  the 
power  of  agents  to  waive  the  conditions  or  requirements  of  insur- 
ance policies.  There  is  no  necessary  inconsistency  in  the  decisions 
of  this  court  on  the  subject.  The  determination  of  the  question 
depends  on  the  rank  and  authority  of  the  agent  and  the  subject- 
matter  with  reference  to  which  he  assumes  to  act.  We  have  recently 
held  [Hicks  v.  British  Am.  Ass.  Co.,  162  N.  Y.  284)  that  a  local  agent 
authorized  to  issue  policies  could  not  by  his  declarations  or  acts 
waive  the  provision  of  a  policy  that  proofs  of  loss  must  be  furnished. 
The  agent  in  this  case  however  was  not  a  local  agent  but  was  vested 
with  plenary  powers  to  adjust  the  defendant's  liability  and  pay  any 
claim  that  might  be  made  against  it.  As  to  the  matter  in  hand  he 
was  a  general  agent,  not  a  special  agent  or  one  witli  limited  authority, 
and  could  do  whatever  the  company  itself  might  do.  It  is  unques- 
tionable that  he  could  have  paid  the  loss  without  the  production  of 
any  proofs  of  loss;  equally,  he  could  repudiate  all  liability  on  the 
part  of  the  defendant  and  waive  the  proofs  of  loss  or  appointment 
of  appraisers.  The  question  seems  settled  by  the  late  decision  of 
this  court  in  Sergent  v.  Liverpool  &'  L.  Csr'  G.  Ins.  Co.,  155  N.  Y.  349, 
355,  where  it  is  said  through  Bartlett,  J.,  that  "  While  it  is  true  that 
the  policy  in  suit  contained  the  usual  clause  as  to  proofs  of  loss 
being  filed  within  sixty  days,  and  that  no  officer,  agent  or  other 
representative  of  the  company  should  have  power  to  waive  any  con- 
dition thereof,  except  by  written  agreement  indorsed  thereon,  yet  a 
party  to  a  contract  containing  such  a  provision  may,  by  con- 
duct, estop  himself  from  enforcing  it  against  one  who  has  acted 
in  reliance  upon  such  conduct.  He  may  also  be  estopped  by 
the  act  of  an  agent  who  possesses,  or  whom  he  has  held  out  to 
possess,    this  power  in  respect    to   the    provision."     In   that  case 


INSURANCE   AGENTS.  503 

the  court  followed  its  previous  decision  in  Bishop  v.  Agr.  Ins.  Co., 
130  N.  Y.  488. 

The  judgment  should  ba  affirmed,  with  costs. 

Parker,  Ch.  J.,  Gray,  Bartlett,  Martin,  Vann  and  Werner, 

JJ.,  concur. 

Judgment  affirmed. 


4.  Sub-agents. 

ARFF  V.  STAR  FIRE  INSURANCE  CO. 

125  N.  Y.  57.  —  1890. 

Action  by  Daniel  Arff  against  the  Star  Fire  Insurance  Company 
on  a  policy  of  insurance.  A  judgment  for  defendant,  entered  on 
the  dismissal  of  the  complaint  at  the  trial,  was  affirmed  on  appeal 
to  the  General  Term;  and  from  the  judgment  of  affirmance  plaintiff 
appeals. 

Peckham,  J.  —  This  is  an  action  to  recover  upon  a  policy  of  insur- 
ance issued  by  the  defendant  upon  certain  personal  property  belong- 
ing to  the  plaintiff.  A  loss  having  occurred,  and  plaintiff  having 
made  a  demand  upon  defendant  for  payment  under  the  policy,  the 
defendant  refused  to  pay,  because  it  appeared  that  other  insurance 
had  been  taken  subsequent  to  the  issuing  ot  the  policy  in  question, 
and,  as  defendant  claimed,  no  notice  had  been  given  to  it  of  the 
taking  of  such  insurance.  There  was  a  clause  in  the  policy  by  which 
the  plaintiff  "  agreed  to  notify  the  company  if  at  the  making  of  this 
insurance,  or  at  any  time  during  its  continuance,  there  shall  be 
any  other  insurance  applied  to  the  property  herein  described,  or  any 
part  thereof,  whether  the  same  be  valid  or  not."  It  was  also  pro- 
vided that  the  policy  should  become  void  if  the  assured  neglected 
to  comply  with  its  terms,  conditions,  or  covenants.  There  was  also 
a  provision  in  the  policy,  that  "  only  such  persons  as  shall  hold  the 
commission  of  this  company  shall  be  considered  as  its  agents  in  any 
transaction  relating  to  this  insurance  or  any  renewal  thereof,  or  the 
payment  of  premium  to  the  company.  Any  other  person  shall  be 
deemed  to  be  the  agent  of  the  assured,  and  payment  of  the  premium 
to  such  person  shall  be  at  the  sole  risk  of  the  assured."  The  plain- 
tiff claimed  upon  the  trial  that  he  had  given  the  notice  required  by 
the  company.  He  had  in  fact  given  it  to  one  Werner  Strecker, 
and  whether  or  not  that  notice  is  sufficient  is  the  only  question  in  the 
case.  The  plaintiff  was  nonsuited  on  the  ground  that  he  had  not 
given  the  notice  as  required  by  the  policy,  and  that  judgment  of 
nonsuit  has  been  affirmed  by  the  General  Term,  and  the  plaintiff 


504  INSURANCE   AGENTS. 

appeals  here.  It  appeared  in  evidence  that  McDonald  &  Van 
Alstyne  were  the  duly  commissioned  agents  of  the  company  in  the 
city  of  Troy  at  the  time  when  this  policy  was  issued.  Mr.  Van 
Alstyne  swore  that  his  firm  had  authority,  as  agents  of  the  defend- 
ant, to  give  permits  for  additional  insurance,  and  to  consent  to 
assignments  for  transfers  of  insurance.  He  also  stated  that  their 
authority  as  agents  of  the  defendant  was  to  do  a  general  insurance 
business  for  the  company,  collect  premiums,  give  receipts  and  con- 
sents and  indorsements  on  insurance  policies.  They  had  been  agents 
of  the  defendant  for  five  or  six  years  at  the  time  in  question.  When 
this  policy  was  issued,  and  up  to  the  time  of  the  occurrence  of  the 
loss,  this  firm  had  been  doing  business  in  the  city  of  Troy  for  the 
defendant  as  general  insurance  agents,  and  during  that  time  Mr. 
Van  Aliityne  said  that  they  "  had  in  their  employ,  among  others,  this 
Werner  Strecker,"  and  he  designated  the  manner  of  his  employment 
as  "  woiking  for  us  as  a  broker.  I  mean  soliciting  insurance  on 
commission.  He  was  soliciting  insurance  for  our  firm,  and  our  firm 
only,  on  a  commission.  His  compensation  was  regulated  by  certain 
commission  on  business  he  brought.  He  did  not  do  other  fire  insur- 
ance that  I  know  of.-  What  he  would  do  would  be  to  go  and  solicit 
insurance  and  bring  it  to  our  office.  If  we  approved  it,  we  would 
take  it  and  pay  him  his  commission.  That  was  all.  He  was  not 
soliciting  fire  insurance  for  any  one  else.  His  arrangement  about 
his  working  for  us  in  the  way  of  fire  insurance  was  that  he  was 
employed  by  us  to  solicit  insurance  for  our  office  exclusively,  upon 
which  we  paid  him  a  commission  upon  the  business  he  brought  in." 
He  also  said  that  Strecker  had  a  desk  in  their  office  during  this  time. 
"  Not  one  of  his  own,  but  he  used  one  that  was  in  the  office,  the 
same  as  any  person.  When  he  happened  in,  he  came  in  and  used  a 
desk  there  the  same  as  any  broker.  He  had  a  desk  that  he  used 
pretty  much  all  the  time  for  himself." 

Mr.  Strecker  himself  testified  that  he  was  "  in  the  insurance  busi- 
ness principally  in  1884,  —  fire  and  life  both  ;  working  for  McDonald 
&  Van  Alstyne,  and  for  no  one  else,  not  in  fire  insurance.  I  was 
paid  according  to  the  business  I  brought  in.  If  I  did  a  great  deal 
of  business,  I  got  a  great  deal  of  money;  and,  if  I  didn't,  I  got  less. 
During  that  year,  I  do  not  know  whether  it  could  be  called  working 
under  a  salary  or  not;  it  was  always  regulated  by  the  amount  of 
business.  There  was  a  desk  in  the  office  I  usually  occupied.  The 
nature  of  my  employment  was  soliciting."  He  solicited  from  Mr. 
Arff  an  application  for  the  policy  in  question,  and  it  was  after  the 
issuing  of  the  policy  that  the  plaintiff  informed  Mr.  Strecker  that 
other  insurance  had  been  taken  through  Mr.  Fromann.     It  was  also 


INSURANCE    AGENTS.  505 

Stated  by  Mr.  Van  Alstyne  that,  under  their  agreement  with  Mr. 
Strecker,  "  he  was  at  liberty  to  work  for  any  other  insurance  com- 
pany if  he  pleased.  He  could  place  his  business  with  other  insur- 
ance companies  if  he  chose.  He  could  place  such  business  as  he 
solicited,  with  other  companies  if  he  chose,  with  other  agents.  He 
had,  for  some  considerable  period  anterior  to  1884,  acted  for  us  in 
the  matter  of  soliciting  fire  insurance.  His  ofifice  was  located  with 
us.  He  had  a  desk  in  our  office.  Prior  to  this  he  had  been  in  our 
employ  since  1880,  doing  business  exclusively  for  our  company,  and 
having  a  desk  in  our  office  during  that  time." 

There  was  thus  evidence  from  which  the  jury  could  infer  that  Mr. 
Strecker  was  solely  in  the  employ  of  these  agents,  and  that  the  kind 
of  employment  in  which  he  was  engaged  was  the  soliciting  for  them 
of  policies  of  insurance,  and  for  them  exclusi^'ely,  and  that  his  com- 
pensation for  the  services  performed  by  him  for  them  depended  upon 
the  amount  of  business  which  he  was  able  to  do;  or,  in  other  words, 
the  number  of  applications  which  he  secured  for  them,  and  which 
they  accepted.  It  is  true  that  Mr.  Van  Alstyne  denominated  this 
kind  of  service  as  the  service  of  a  broker,  and  he  also  stated  that 
Mr.  Strecker  was  at  liberty  to  work  for  any  other  insurance  com- 
pany if  he  pleased.  If  he  meant  that  Mr.  Strecker  had  the  power 
to  violate  his  agreement  with  them,  and,  instead  of  working  exclu- 
sively for  them,  work  for  others,  why  that  is  a  self-evident  propo- 
sition, and  has  no  bearing  upon  the  question  as  to  the  capacity  in 
which  he  was  then  employed  by  them.  If  he  meant  to  assert  that 
he  was  not  exclusively  employed  by  them,  then  it  is  a  contradiction 
of  what  the  witness  had  already  several  times  stated  to  be  the  truth, 
and  also  a  contradiction  of  the  testimony  of  Mr.  Strecker  himself, 
and  the  fact  of  exclusive  employment,  if  material,  should  have  been 
left  to  the  jury  to  determine.  If  the  witness  Strecker  were  really 
nothing  but  an  ordinary  insurance  broker,  notice  to  him  of  subse- 
quent insurance  would  not  be  notice  to  the  company.  Mellen  v. 
Insurance  Co.,  17  N.  Y.  609;  Devens  v.  Insurance  Co.,  Z2>  ^-  ^ ■  168. 

What  is  understood  under  the  designation  of  an  insurance 
broker  is  one  who  acts  as  a  middleman  between  the  insured  and 
the  company,  and  who  solicits  insurance  from  the  public  under  no 
employment  from  any  special  company;  but,  having  secured  an 
order,  he  either  places  the  insurance  with  the  company  selected  by 
the  insurer,  or,  in  the  absence  of  any  selection  by  him,  then  with 
the  company  selected  by  such  broker.  Ordinarily  the  relation 
between  the  insured  and  the  broker  is  that  between  the  principal 
and  his  agent,  and,  according  to  Arnould  on  Insurance,  (vol.  i,  2d 
ed.,  p.  108,  c.  5),  "  the  business  of  a  policy  broker  would  seem  to 


506  INSURANCE   AGENTS. 

be  limited  to  receivinjj  instructions  from  his  principal  as  to  the 
nature  of  the  risk,  and  the  rate  of  preniium  at  which  he  wishes  to 
insure;  communicating  these  facts  to  the  underwriters;  effecting 
the  policy  with  them  on  the  best  possible  terms  for  his  employer; 
paying  them  the  premium  and  receiving  from  them  whatever  may 
be  due  m  case  of  loss."  In  the  two  cases  above  cited  of  Mellen  v. 
Insurance  Co.  and  Devens  v.  Insurance  Co.,  it  appeared  that  the  broker 
who  effected  the  insurance  in  either  case  was  not  in  the  employment 
of  the  insuring  company  at  all,  and  that  tlie  only  connection 
between  the  company  and  him  was  that  when  he  presented  to  them 
an  application  for  insurance,  if  the  company  chose  to  issue  a  policy, 
he  was  paid  a  commission  thereon  by  the  company.  In  each  of 
those  cases  the  man  procuring  the  insurance  was  not  confined  to  any 
company  in  his  labors.  He  was  in  no  sense  in  the  employment  of 
any  company,  and  the  nature  of  his  connection  was  such  that  upon 
receipt  of  the  premium  by  the  company,  and  the  delivery  of  the 
policy  to  the  insured,  his  connection  with  the  company  wholly 
ceased. 

The  connection  in  this  case  between  this  assumed  broker  and  his 
principal  is  entirely  different.  Assuming  the  truth  of  the  statement 
that  he  was  in  the  exclusive  employment  of  these  agents,  and  that 
it  was  his  duty  in  such  case  to  bring  whatever  applications  he 
received  to  the  agents  because  of  his  agreement  with  them  that  he 
should  work  for  them  exclusively,  it  would  seem  that  his  character 
as  an  ordinary  insurance  broker  had  ceased  from  the  time  that  he 
entered  into  such  employment.  However  these  agents  might  char- 
acterize his  employment,  the  fact  upon  the  testimony  in  the  case, 
assuming  its  truth  as  above  construed,  leaves  him,  in  my  opinion, 
nothing  more  ot  less  than  a  clerk  or  employee  of  these  agents.  He 
performs  the  same  duties  that  would  be  performed  by  an  individual 
employed  as  a  clerk,  and  told  to  do  this  business.  The  mere  solic- 
itation of  insurance,  and  the  bringing  of  the  application  to  these 
agents,  v.'ho  are  to  determine  finally  whether  it  shall  or  shall  not  be 
accepted,  is  not  of  such  a  nature  that  it  could  not  be  done  by  an 
ordinary  clerk,  nor  does  the  doing  of  it  in  that  way,  and  under  such 
circumstances,  necessarily  preclude  the  person  who  does  it  from 
occupying  the  position  of  clerk,  and  place  him  in  the  position  of  an 
ordinary  insurance  broker.  If,  upon  these  facts,  he  acted  as  clerk, 
and  the  oral  notice  were  given  to  him  in  his  capacity  of  clerk  of 
these  agents,  such  notice  would  be  sufificient.  McEwen  v.  Insurance 
Co.,  5  Hill,  loi,  approved  in  Wilson  v.  Insurance  Co.,  14  N.  Y.  418, 
at  421. 

It  has  been  held  that  an  ordinary  agent  of  an  insurance  company 


INSURANCE   AGENTS.  507 

has  the  power  to  employ  clerks  to  discharge  the  ordinary  business 
of  his  agency,  and  that  a  waiver  of  a  character  which  the  agent  him- 
self could  make  is  to  be  attributed  to  him  when  made  by  his  clerk. 
In  Bodiiie  \\  Insurance  Co.,  51  N.  Y.  117,  it  was  said  by  Earl,  C,  at 
page  123:  "We  know,  according  to  the  ordinary  course  of  busi- 
ness, that  insurance  agents  frequently  have  clerks  to  assist  them, 
and  that  they  could  not  transact  their  business  if  obliged  to  attend 
to  all  the  details  in  person;  and  these  clerks  can  bind  their  princi- 
pals in  any  of  the  business  which  they  are  authorized  to  transact. 
An  insurance  agent  can  authorize  his  clerk  to  contract  for  risks,  to 
deliver  policies,  to  collect  premiums,  and  to  take  payments  of  pre- 
miums in  cash  or  securities,  and  to  give  credit  for  premiums,  or  to 
demand  cash;  and  the  act  of  the  clerk  in  all  such  cases  is  the  act  of 
the  agent,  and  binds  the  company  just  as  effectually  as  if  it  were 
done  by  the  agent  in  person.  The  maxim  of  dch'ga/iis  invi potest 
delegare  does  not  apply  in  such  a  case.     Story,  Ag.,  §  14." 

In  the  case  of  Clark  n.  Insurance  Co.,  21  Wkly.  Dig.  197,  the  Gen- 
eral Term  of  the  Supreme  Court  held  that  the  policy  in  that  suit, 
countersigned  by  a  clerk  in  the  office  of  the  authorized  and  com- 
missioned agent  of  the  defendant,  was  a  proper  and  valid  policy, 
where  the  clerk  was  authorized  by  the  agent  to  contract  new  insur- 
ance and  to  give  renewals,  to  make  monthly  and  daily  reports,  and 
collect  premiums  on  policies  and  renewals  issued.  In  Chase  v. 
Insurance  Co.,  14  Hun,  456,  it  was  held  that  the  knowledge  of  a  clerk 
of  the  agents  of  defendant's  company  that  the  house  insured  was 
vacant  was  the  knowledge  of  the  agents  of  the  comp?)ny,  and  there- 
fore the  knowledge  of  the  company  itself.  And  in  Kuney  v.  Insur- 
ance Co.,  36  Hun,  66,  the  Supreme  Court  in  the  Fifth  Department 
held  that  a  general  agent  of  a  foreign  insurance  company  had  a  right, 
by  virtue  of  its  authority,  and  for  the  purpose  of  discharging  the 
duties  appertaining  to  his  office,  to  employ  all  necessary  agents, 
clerks,  and  surveyors  to  enable  him  to  conduct  the  business  with 
correctness,  intelligence,  and  promptness,  and  that,  when  he  did  in 
fact  employ  others,  their  acts  and  contracts  would  be  binding  upon 
the  company  the  same  as  if  made  personally  by  Miller,  the  general 
agent. 

Enough  has  been  said  to  show  that  an  agent  of  an  insurance  coir^- 
pany  has  the  right  to,  and  indeed  it  is  the  expectation  of  the  com- 
pany that  he  will,  employ  such  clerks  and  other  assistants  as  may 
be  necessary  and  proper  in  order  that  he  may  do  the  business  for 
which  he  has  been  appointed  agent.  Soliciting  insurance  is  part  of 
the  business  of  such  agents,  and  it  is  not  to  be  assumed  that  such 
solicitation  can  be  made  only  by  the  agents  personally,  nor  can  it 


508  INSURANCE   AGENTS. 

be  held,  as  matter  of  law,  that,  when  it  was  made  by  some  person 
employed  exclusively  by  them,  such  solicitation  on  the  part  of  the 
person  thus  employed  makes  him  an  insurance  broker,  and  takes 
away  from  him  his  character  as  clerk  or  employee  of  the  agent. 
The  fact  that  Strecker  was  compensated  for  his  services  to  these 
agents  by  a  commission  on  the  business  which  he  brought  in  is  not 
conclusive  upon  the  question  of  the  capacity  in  which  he  worked. 
Clerks  or  other  employees  are  frequently  compensated  by  a  com- 
mission upon  the  aiuount  of  business  brought  to  the  employer  by 
them.  In  order  to  constitute  Strecker  such  an  employee  that  he 
might  receive  notice  fof  his  employers  as  to  subsequent  insurance 
in  a  case  like  this,  it  is  not  necessary  that  he  should  have  been 
engaged  to  perform  only  sach  duties  as  may  be  and  are  done  in  the 
office  of  his  employer.  The  place  of  the  performance  of  the  duties 
is  neither  the  sole,  nor  always  a  necessary,  criterion  by  which  to 
judge  of  the  nature  of  such  service.  The  employee  of  the  agent  in 
the  case  of  Bodine  x.  Insurance  Co.,  supra,  was  not  confined  to  the 
office  in  the  performance  of  duties  which  he  discharged  for  his 
employer. 

There  is,  moreover,  in  the  evidence  of  one  of  the  agents,  sufficient 
for  a  jury  to  infer  that  Strecker  had  a  desk  in  their  office  and  belong- 
ing to  them,  assigned  to  him  for  his  personal  use  while  at  the  office 
in  the  discharge  of  duties  pertaining  to  his  employment  by  them, 
and  that  it  was  his  habit  to  so  use  the  desk,  which  was  regarded  as 
his  for  such  purpose.  But,  upon  the  question  of  the  character  of 
the  service,  we  think  it  is  sufficient  that  the  person  is  engaged  by 
the  agent  to  do  for  him  some  portion  of  the  ordinary,  usual,  and 
well-known  duties  pertaining  to  the  position  of  the  agent,  and  what 
he  does  in  the  course  of  that  employment,  and  within  its  general 
scope,  is  done  by  the  agent.  The  notice  which  he  receives  while  in 
the  performance  of  his  duties,  and  which  relate  to  the  subject-matter 
thereof,  must  be  regarded  in  the  same  light  as  and  equivalent  to  a 
notice  to  the  agent. 

The  proof  in  the  case  is  susceptible  of  the  inference  that  Strecker 
was  employed  exclusively  by  the  agents  of  defendant,  and  to  per- 
form for  them  that  which  is  part  of  the  ordinary  and  usual  business 
of  an  agent  of  an  insurance  company,  viz.,  to  solicit  business.  If 
the  agents  refused  to  accept  the  particular  application,  Strecker  had 
nevertheless  done  all  that  he  was  employed  to  do  by  bringing  it  to 
them.  By  his  agreement,  their  refusal  did  not  authorize  him  to 
solicit  some  other  agent  or  company  to  take  the  risk.  At  least  this 
construction  can  be  given  to  some  of  the  evidence  on  the  part  of  the 
plaintiff.     In  truth,  in  one  view  of  the  evidence,  Strecker  was  not  a 


INSURANCE   AGENTS.  509 

middleman  at  all.  He  did  not  act  as  such  in  this  case.  What  he 
did  was  done  by  him  from  the  very  first  in  the  interest  of  and  for 
these  particular  agents. 

Nor  does  the  provision  in  the  policy,  that  no  one  not  holding  the 
commission  of  the  company  shall  be  considered  as  its  agent,  pre- 
vent the  agents'  employment  of  the  usual,  and  mdeed  necessary, 
clerical  and  other  assistants,  in  order  to  enable  them  to  properly 
perform  their  duties  as  commissioned  agents  of  the  company.  And, 
when  thus  employed,  the  ordinary  rules  of  law  are  applicable  to 
their  acts  and  positions.  We  think  that  if  Slrecker  were  exclusively 
employed  by  the  agents,  and  that  his  duties  could  only  be  honestly 
discharged  while  the  agreement  between  them  lasted  by  giving  his 
entire  service  in  that  line  to  the  agents  of  the  defendant,  and  if  he 
were  thus  employed  at  the  time  that  he  procured  this  application 
and  received  this  notice,  the  defendant  is  bound  by  such  notice  the 
same  as  if  it  had  been  given  in  person  to  their  agents.  If,  on  the 
contrary,  according  to  some  possible  construction  of  the  evidence 
of  one  of  the  agents,  the  employment  were  not  exclusive,  and  he 
was  occupying  really  the  position  of  a  simple  insurance  broker,  then 
the  notice  was  not  sufficient,  There  were  many  questions  put  to 
the  agent  when  he  was  on  the  stand,  the  purpose  of  which  was  to 
show  (what  may  be  inferred  from  the  naiure  of  the  business)  that 
the  agents  employed  clerks.  Counsel  for  the  plaintiff  also  asketi 
the  witness  whether  clerks  in  his  employ  did  not  frequently  and 
generally  sign  consents  for  other  and  additional  insurance  in  respect 
to  this  company;  whether  it  had  been  the  habit  of  this  firm  of 
agents  to  attend  to  the  details  of  the  business,  and  how  many  clerks 
the  firm  had  at  this  time.  All  these  questions  were  objected  to,  and 
ruled  out  by  the  court  below.  We  think  they  were  proper  for  the 
purpose  of  showing  the  manner  in  which  the  business  of  this  firm 
was  conducted,  although  perhaps  the  court  might  assume  or  take 
judicial  notice  of  the  fact  that  agents  of  an  insurance  company  do 
business  largely  through  clerks  and  sub-agents,  and  that  many  of  the 
details  of  their  business  are  not  performed  by  themselves.  We 
should  not  perhaps,  in  this  instance,  reverse  the  judgment  for  the 
refusal  to  admit  this  evidence,  but  we  think  its  admission  would  not 
have  been  error. 

Upon  the  whole  we  think  the  learned  judge  erred  in  nonsuiting 
the  plaintiff,  and  that  the  judgment  entered  upon  the  nonsuit  must 
be  reversed,  and  a  new  trial  granted,  with  costs  to  abide  the  event. 
All  concur,  except  Earl  and  Gray,  JJ.,  dissenting  ' 

'  Accord  as  to  sub  agents,  Krumm  v.  Co.,  40  Oh.  225. 


510  INSURANCE   AGENTS. 

Hooker,  J.,  m  GORE  <■.  CANADA  LIFE  ASSUR.  CO. 

77  N.  VV.  Rep.  650  (Mich.)— 1898. 

• 

The  plaintiff  brought  an  action  against  the  defendant,  and  recov- 
ered a  judgment  for  a  balance  claimed  to  be  due  him  for  commis- 
sions upon  insurance  premiums  obtained  from  policies  written  for 
defendant's  patrons  upon  his  solicitation.  The  defendant  has 
brought  the  case  to  this  court  by  writ  of  error. 

At  the  threshold  of  the  case  is  the  question  whether  the  plaintiff 
sustained  contract  relations  with  the  defendant.  His  claim  is  that 
he  was  employed  on  behalf  of  the  defendant  by  one  Glass,  with  the 
subsequent  approval  of  Bucknell,  who  was  called  the  "  manager  of 
the  Michigan  branch."  The  defendant  asserts  that  it  made  a  con- 
tract with  some  men  named  Cox,  living  in  London,  Ontario,  by 
which  they  had  control  of  its  business  in  Michigan  and  some  other 
States,  upon  a  commission  of  fifty  percent,  upon  new  business,  they 
to  employ  and  pay  their  own  subordinates;  and  that  they  estab- 
lished a  branch  office  for  Michigan,  which  they  maintained  under 
the  charge  of  Bucknell,  who  was  called  "  manager  of  the  Michigan 
branch  of  the  Canada  Life  Assurance  Company,"  who  was  paid  by  a 
share  of  the  commission  on  Michigan  business  and  an  allowance 
made  by  the  Coxes.  It  is  claimed  that  Glass  was  engaged  by  them 
upon  similar  terms;  that  he  was  designated  "  inspector  of  agen- 
cies; "  that  he  was  not  authorized  to  employ  any  agents  for  the 
company,  but  was  at  liberty  to  divide  his  own  commissions,  as  he 
pleased,  with  any  whom  he  should  see  fit  to  engage  to  help 
him       *     *     * 

The  claim  is  made  that  Bucknell  was  held  out  as  a  general  agent, 
and,  therefore,  that  Gore  had  a  right  to  assume  that  he  was  author- 
ized to  employ  him,  or  ratify  the  act  of  Glass.  Bucknell  had  charge 
of  the  Michigan  branch  or  office  for  Cox,  who  had  a  contract  to 
work  the  territory.  The  Coxes  were  the  ones  who  were  held  out 
as  general  agents,  if  there  were  any  general  agents,  and  we  do  not 
find  anything  showing  that  Bucknell  was  a  general  agent,  of  the 
company.  Gore  himself  testified  that  he  did  not  know  what  his 
arrangement  was.  There  is  nothing  to  show  that  he  was  mis- 
informed by  the  company,  or  that  he  even  tried  to  ascertain.  He 
may,  perhaps,  have  known  that  the  circulars  of  the  company  con- 
tained his  name  as  manager  of  the  Michigan  branch,  but  that  is  all. 
We  do  not  intend  that  it  shall  be  understood  that  we  are  of  the 
opinion  that  a  general  agency,  so  called,  necessarily  carries  with  it 
the  authority  to  appoint  special  agents  for  the  company.  Mani- 
festly, any  agency,  general  or  special,  is  no  more  than  the  principal 


INSURANCE   AGENTS.  '  511 

chooses  to  make  it,  unless  he  undertakes  to  limit  the  effect  of  the 
power  which  others  have  a  right  to  suppose  he  has  conferred,  when 
he  will  be  estopped  to  deny  such  power.  We  are  aware  that  the 
case  of  Assurance  Co.  v.  Probst,  i8  Neb.  526,  26  N.  W.  204,  is  author- 
ity for  the  proposition  that,  where  the  company  conceded  that  one 
Craine  was  the  agent  for  all  of  its  business  for  the  Northwest,  the 
company  would  be  bound  by  his  employment  of  an  agent,  notwith- 
standmg  a  private  understanding  that  payment  of  all  agents 
appointed  was  to  be  made  by  the  agent.  There  the  general  author- 
ity to  appoint  is  apparent.  But  here  we  have  no  employment  by  a 
general  agent,  nor  by  any  one  held  out  or  advertised  as  such. 
Bucknell  was  advertised  as  manager  of  the  Michigan  branch,  and 
neither  Glass  nor  Bucknell,  nor  even  the  Coxes  themselves,  had 
authority  to  issue  a  policy,  but  merely  to  obtain  and  submit  appli- 
cations to  the  head  office,  as  the  witnesses  call  it,  of  the  company. 
The  true  test,  after  all,  is  not  a  real  or  imaginary  distinction 
between  the  general  or  special  agents.  It  is  a  question  whether 
the  agent,  general  or  special,  as  the  case  may  be,  has  acted  within 
the  apparent  scope  of  the  authority  confided.  In  the  Nebraska 
case  cited  the  holding  of  the  court  was  based  on  the  fact  that  the 
agent  was  authorized  to  transact  all  of  the  business  of  the  company, 
not  because  he  was  called  a  general  agent.  The  act  was  held  to  be 
within  the  general  scope  of  his  authority;  and,  while  secret  instruc- 
tions might  take  away  the  power,  one  ignorant  of  them  could  not 
be  permitted  to  suffer  loss  because  of  his  ignorance  of  such  secret 
instructions,  having  in  good  faith  relied  upon  the  general  authority 
conferred.  This  rule  is  as  applicable  to  a  case  where  one  authorizes 
an  agent  to  sell  a  particular  horse,  the  authority  being  general. 
The  secret  instructions  as  to  price  or  warrant  cannot  bind  the  pur- 
chaser, as  these  are  ordinarily  within  the  scope  of  the  general 
authority  to  sell  the  horse.  Hatchv.  Taylor,  10  N.  H.  538;  Hunter 
v.  Jameson,  28  N.  C.  252;  Bradford  \.  Bush,  10  Ala.  386.  There  is 
no  testimony  in  this  case  that  warrants  the  conclusion  that  Buck- 
nell had  general  authority  to  appoint  agents  and  conduct  defendant's 
business  in  Michigan.  He  was  advertised  as  the  manager  of 
the  branch.  Apparently  he  had  charge  of  the  business  brought  to 
the  office  by  the  various  sub-agents,  and  was  the  medium  through 
which  such  business  reached  the  company.  But,  unlike  the 
Nebraska  case,  there  is  a  lack  of  evidence  to  show  that  he  had 
charge  of  all  of  the  defendant's  business  in  Michigan.  He  was  man- 
ager of  the  Michigan  branch,  but  that  does  not  justify  a  guess  by 
court  or  jury  that  binding  the  company  by  the  appointment  of 
agents  for  it  was  within  the  general  scope  of  the  authority  actually 


512  '  INSURANCE    AGENTS. 

given  him.  In  i  Pars.  Cont.,  p.  43,  it  is  said:  "  We  think  the  dis- 
tinction between  a  general  agency  and  a  special  agent  useful,  and 
siitticientl}'  defiiiite  for  practical  purposes,  although  it  may  have 
been  pressed  too  far  and  relied  upon  too  much  in  determining  the 
responsibility  of  a  principal  for  the  acts  of  an  agent.  It  may, 
indeed,  be  said  that  every  agency  is,  under  one  aspect,  special,  and 
under  another,  general.  No  agent  has  authority  to  be  in  all 
repeats  and  for  all  purposes  an  alter  ego  of  his  principal,  binding 
him  by  whatever  the  agent  may  do  in  reference  to  any  subject  what- 
ever; and,  therefore,  the  agency  must  be  special  so  far  as  it  is  limited 
by  place  or  time,  or  the  extent  or  character  of  the  work  to  be  done. 
On  the  other  hand,  every  agency  must  be  so  far  general  that  it  must 
cover  not  merely  the  precise  thing  to  be  done,  but  whatever  usually 
and  rationally  belongs  to  the  doing  of  it.  Of  late  years,  courts  seem 
more  disposed  to  regard  this  distinction,  and  the  rules  founded 
upon  it,  as  altogether  subordinate  to  that  principle  which  may  be 
called  the  foundation  of  the  law  of  agency,  namely,  that  a  princi- 
pal is  responsible,  either  when  he  has  given  to  an  agent  sufificient 
authority,  or  when  he  justifies  a  party  dealing  with  his  agent  in 
believing  that  he  has  given  to  this  agent  this  authority."  We  can- 
not say  that  this  evidence  tends  to  prove  that  the  appointment  of 
agents  usually  and  rationally  belongs  to  the  doing  of  the  business 
confided  to  Bucknell,  and  we  certainly  cannot  say  it  as  a  matter 
of  law. 


5.   Oral  Waiver. 

LAMBERTON  v.  CONNECTICUT  FIRE  INSURANCE  CO. 

39  Minn.  129.  —  1888. 

Dickinson,  J. — The  plaintiff  recovered  a  verdict  in  this  action 
upon  a  contract  of  fire  insurance.  This  is  an  appeal  from  an  order 
refusing  a  new  trial.  The  construction  and  effect  of  the  following 
provisions  of  the  policy  are  to  be  considered:  "  If  the  premises 
hereby  insured  are  or  shall  hereafter  become  vacated  or  unoccupied, 
and  so  remain  for  more  than  ten  days,  *  *  *  without  notice 
to  the  company  in  each  case,  and  consent  indorsed  hereon,  *  *  * 
this  policy  shall  be  void.  *  *  *  This  policy  may  be  cancelled 
at  any  time  at  the  request  of  the  assured,  the  company  retaining 
customary  monthly  short  rates  for  the  time  the  policy  has  been  in 
force.  It  may  also  be  cancelled  at  any  time  by  the  company,  upon 
giving  written  or  verbal  notice  to  that  effect,  and  refunding  or  ten- 
dering to  the  assured     *     *     *     a  ratable  proportion  of  the  premium 


INSURANCE   AGENTS.  513 

for  the  unexpired  term  of  the  policy.  *  *  *  Limitations  to  Suits. 
*  *  *  And  it  is  further  expressly  covenanted  by  the  parties 
hereto  that  no  officer,  agent,  or  representative  of  this  company 
shall  be  held  to  have  waived  any  of  the  terms  and  conditions  of  this 
policy,  unless  such  waiver  shall  be  indorsed  hereon  in  writing." 
Some  months  prior  to  the  destruction  of  the  piemises  by  fire  they 
became,  and  thereafter  remained,  vacant;  the  assured  in  the  mean- 
time endeavoring  to  secure  a  suitable  tenant.  The  local  agent  of 
the  defendant  at  Winona,  where  the  property  was  situated,  who  had 
issued  this  policy,  knew  that  the  house  was  vacantduring  all  of  this 
time,  and  in  negotiations  with  the  assured  upon  this  subject  he 
treated  the  policy  as  still  continuing  in  force;  so  that,  if  the 
defendant  was  bound  by  his  acts  in  this  particular,  it  would  be 
estopped  to  claim  that  its  liability  had  terminated.  He  did  not, 
however,  notify  the  company  of  the  fact,  nor  was  there  any  written 
consent  that  the  policy  should  remain  in  force. 

The  question  is  thus  presented  whether  the  conduct  of  the  agent 
affected  and  bound  the  company.  The  position  taken  on  the  part 
of  the  company  is  that  the  power  of  the  agent  to  bind  the  principal 
in  this  particular  was,  by  the  clause  found  at  the  close  of  the  fore- 
going extract  from  the  policy,  so  restricted  that  he  could  only  do 
this  by  a  written  consent  indorsed  on  the  policy;  and  that,  the 
assured  being  thus  advised  of  the  restrictions  upon  the  power  of  the 
agent,  the  action  of  the  latter  was  ineffectual  to  bind  the  company. 

It  is  an  important  consideration  that  this  policy  does  not  impose 
any  restriction  upon  the  power  of  any  particular  agent,  or  class  of 
agents;  nor  does  it  limit  the  power  of  some  agents  by  conferring 
authority  exclusively  upon  others;  nor  does  it  prescribe  the  manner 
in  which  alone  a  particular  agent  or  class  of  agents  shall  exercise 
their  authority.  We  do  not,  therefore,  express  any  opinion  con- 
cerning the  effect  of  such  stipulations  The  restriction  here  is  so 
broad  that  it  applies  alike  to  every  "  officer,  agent,  or  representative 
of  this  company;"  and,  as  a  corporation  can  only  act  through  such 
agencies,  the  substance  of  the  provision  under  consideration  is  that 
the  company  shall  not  be  held  to  have  waived  any  of  the  terms  or 
conditions  of  the  policy,  unless  its  waiver  be  expressed  by  a  written 
indorsement  on  the  policy.  That  is  to  say,  in  other  words,  that 
one  of  the  parties  to  a  written  contract,  vhich  is  not  required  by 
law  to  be  in  writing,  cannot,  subsequent  to  the  making  of  the  con- 
tract, waive,  by  parol  agreement,  provisions  which  have  been  incor- 
porated in  the  contract  for  his  benefit.  A  contracting  party  cannot 
so  tie  his  own  hands,  so  restrict  his  own  legal  capacity  for  future 
action,  that  he  has  not  the  power,  even  with  the  assent  of  the  other 

LAW  OF  INSURANCE  —  33 


514  INSURANCE   AGENTS. 

party,  to  bind  or  obligate  himself  by  his  further  action  oragreemenc 
contrary  to  the  terms  of  the  written  contract.  Westchester  Fire  Ins. 
Co.  V.  Earle,  n  Mich.  143.  This  is  self-evident.  The  clause  of  this 
policy  relied  upon,  as  expressly  restricting  the  power  of  the  agent 
whose  conduct  is  here  in  question,  is  of  that  character.  If  it  is 
effectual  at  all  as  a  limitation  of  the  power  of  future  action,  it  limits 
the  power  of  every  agent,  officer,  and  representative  of  the  com- 
pany, and  hence,  practically,  that  of  the  corporation.  It  is  no  more 
applicable  to  this  particular  agent  than  to  all  of  those  to  whom  the 
conduct  cf  the  affairs  of  the  corporation  is  committed.  In  that 
broad  scope,  and  as  applicable  to  all  the  representatives  of  the  cor- 
poration, it  cannot  be  enforced  so  as  to  render  inoperative  such  sub- 
sequent action  or  agreement  of  corporate  agents  as  would,  if  it  were 
not  for  this  clause  in  the  contract,  be  deemed  the  effectual  action 
or  agreement  of  the  corporation.  A  more  restricted  application  of 
this  clause,  making  it  to  refer  to  this  particular  agent,  or  to  any 
particular  class  of  agents  or  officers,  cannot  be  made;  nor  can  the 
clause  in  the  former  part  of  the  above  extract  from  the  policy,  as  to 
the  effect  of  vacancy  "  without  notice  to  the  company  and  consent 
indorsed  hereon,"  be  construed  as  a  limitation  upon  the  power  of 
any  particular  agent  or  class  of  agents.  If  it  applies  to  any  agent 
or  officer,  it  does  to  all;  and  if  such  a  stipulation  is  not  effectual  to 
limit  the  legal  capacity  of  the  corporation  as  to  its  future  action,  it 
does  not  limit  its  capacity  to  act  by  its  agents.  The  company,  then, 
was  legally  capable,  acting  through  its  proper  agents,  of  waiving  its 
right  to  treat  the  policy  as  of  no  further  binding  force  by  reason  of 
the  vacancy;  and  it  could  also  waive  compliance  with  that  part 
of  the  same  provision  which  related  to  the  consent  being  indorsed  on 
the  policy.  Confessedly,  the  agent  whose  conduct  is  in  question 
had  authority  to  give  such  consent  by  indorsing  the  same  upon  the 
policy.  When,  in  negotiating  upon  this  subject  with  the  assured, 
he  did  consent,  as  is  established  by  the  verdict  of  the  jury,  he  was 
acting  as  the  agent  of  the  company.  His  action  was  the  action  of 
the  company;  and,  the  assured  having  been  led  to  understand, 
as  the  agent  seems  to  have  done,  that  the  cnntract  should  remain  in 
force  until  further  action  should  be  taken,  the  company  is  now 
estopped,  as  by  its  own  conduct,  to  claim  the  contrary.  This  con- 
clusion finds  sufficient  support  in  the  following  decisions,  and  ia 
others,  although  we  are  aware  that  there  are  decisions  to  the  con- 
trary. Westchester  Fire  Ins.  Co.  v.  Earle,  t,^  Mich.  143;  Viele  v. 
Germania  Ins.  Co..,  26  Iowa,  9;  Young  v.  Hartford  Fire  Ins.  Co.,  45 
Iowa,  377;  American  Cent.  Ins.  Co.  v.  McCrea,  8  Lea,  513;  l^on 
Bories  v.  United,  etc.,  Ins.  Co.,  8  Bush,   133;  Maryland  Fire  Ins.  Co. 


INSURANCE   AGENTS.  51$ 

V.  Gusdorf^Of-Xt  Md.  506;  Insurance  Co.  v.  Norton^  96  U.  S,  234;  Stolle 
V.  ^-Etna  F.  &=  M.  Ins.  Co.,  10  W.  Va,  546;  Carrugi  v.  Atlantic  Fire 
Ins.  Co.,  40  Ga.  135;  Wakefield  \.  Orient  Ins.  Co.,  50  Wis.  532,  7  N. 
W.  Rep.  647;  Whited  v.  Germania  Fire  Ins.  Co.,  76  N.  Y.  415;  Morri- 
son V.  Insurance  Co.  0/  North  America,  69  Te.x.  353,  6  S.  W.  Rep.  605. 

Order  affirmed. 


WILKINS  V.  STATE  INSURANCE  CO. 

43  Minn.  177.  —  i8go. 

Mitchell,  J.  —  The  defendant,  an  Iowa  corporation,  but  doing 
business  in  this  State,  had  an  agent  at  Faribault,  whose  general 
duties  were  to  solicit  insurance,  fill  up  the  blanks  in  printed  policies 
already  signed  by  the  general  officers  of  the  company,  and  left  in. 
his  possession,  countersign  and  deliver  the  same,  and  collect  and 
remit  the  premiums.  It  is  undisputed  in  the  evidence  that  this 
agent,  having  solicited  the  plaintiff  for  insurance  on  his  stock,  and 
the  plaintiff  being  unable  then  to  pay  the  premium,  assumed  to 
waive  immediate  payment,  and  to  give  plaintiff  a  temporary  credit 
for  the  premium,  and  delivered  to  him  the  policy  on  which  this 
action  is  brought.  The  agent  subsequently  called  on  the  plaintiff  at 
least  twice  for  the  premium,  but  the  latter  failed  to  pay;  and  some 
two  and  one-half  months  after  the  policy  was  issued  the  property 
was  burned,  the  premium  being  still  unpaid. 

The  question  is  whether  the  company  was  bound  by  the  act  of  the 
agent  in  waiving  immediate  payment  of  the  premium,  and  giving 
plaintiff  credit.  The  policy  contains  a  provision  that  "  no  insurance 
shall  be  considered  as  binding  until  actual  payment  of  the  premium." 
The  same  rules  apply  to  insurance  companies  as  to  any  other  case 
of  agency.  They  are  bound  by  all  the  acts  of  their  agents  within 
the  scope  of  the  real  or  apparent  authority  with  which  they  have 
clothed  them.,  and  no  farther;  and  it  would  seem  well  settled  by  (he 
great  weight  of  authority  that,  at  least  in  the  case  of  stock  com- 
panies, a  person  dealing  with  an  agent  possessing  the  powers  exer- 
cised by  this  agent  has  a  right  to  assume,  in  the  absence  of  notice 
to  the  contrary,  that  he  has  authority,  pending  negotiations  for  a 
contract  of  insurance,  to  waive  a  provision  like  the  one  quoted,  and 
to  give  a  short  credit  for  the  premium.  But  it  is  the  undoubted 
right  of  the  company,  as  in  the  case  of  any  principal,  to  impose  a 
limitation  upon  the  authority  of  its  agents.  And  it  is  as  elementary 
as  it  is  reasonable  that  if  an  agent  exceeds  his  actual  authority,  and 
the  person  dealing  with  him  has  notice  of  that  fact,  the  principal  is 
not  bound;  and  it  is  upon  this  proposition  that  defendant  chiefly 


5l6  INSURANCE   AGENTS. 

relies.  There  are  two  provisions  in  the  policy  to  whicli  he  refers  in 
support  of  his  contention.  The  first  is  that  "  no  officer,  agent,  or 
representative  of  the  company  shall  be  held  to  have  waived  any 
of  the  terms  or  conditions  of  this  policy  unless  such  waiver  shall  be 
indorsed  thereon."  Following  Lc7m/ft'r/(>/i  v.  Conn.  Fire  Ins.  Co..,  39 
Minn.  129,  39  N.  W  Rep.  76,  which  is  abundantly  supported  by  the 
authorities,  this  contains  no  limitation  upon  the  authority  of  any 
class  of  agents,  prohibiting  them  from  waiving  any  of  the  terms  or 
conditions  of  the  policy.  It  applies  alike  to  all  representatives  of 
the  company,  executive  or  general  officers  as  well  as  others;  and, 
so  far  as  it  assumes  to  be  a  limitation  at  all,  it  is  upon  the  company 
itself,  to  the  effect  that  it  can  only  waive  the  conditions  of  the  policy 
in  a  certain  way,  or,  rather,  it  assumes  to  provide  what  shall  be 
the  exclusive  evidence  of  such  waiver.  This  provision,  therefore, 
will  not  support  defendant's  contention,  but  the  other  or  second  one 
does.  It  is  as  follows:  "  This  policy  is  made  and  accepted  upon 
the  above  express  terms,  and  no  part  of  this  contract  can  be  waived 
except  in  writing  signed  by  the  secretary  of  the  company."  The 
words  "policy"  and  "contract"  are  evidently  here  used  as 
synonymous,  and  the  latter  clause  clearly  means  that  none  of  the 
terms  of  the  policy  can  be  waived  by  any  one  except  the  secretary. 
Conceding  that  this  would  not  prevent  the  company  itself,  through 
its  board  of  directors,  or  other  body  representing  it  in  its-corporate 
capacity,  from  waiving  any  of  the  terms  or  conditions  of  the  policy, 
yet  it  is  a  plain  declaration  that  no  representative  of  the  company 
but  the  secretary  can  do  so,  and  hence  that  no  local  agent  can  do 
it.  This,  being  in  the  policy  itself,  was  notice  to  plaintiff  that  this 
agent  at  Faribault  had  no  authority  to  waive  the  condition  that  no 
insurance  would  be  binding  until  payment  of  the  premium.  It  is 
no  answer  to  say  that  he  did  not  read  the  policy,  and  hence  did  not 
know  what  it  contained.  He  was  bound  to  know  this;  and,  by 
accepting  the  policy,  he  is  estopped  from  setting  up  powers  in  the 
agent  in  opposition  to  the  express  limitations  contained  in  it.  For 
this  reason,  we  think  the  court  erred  in  charging  the  jury  that,  if 
the  policy  was  delivered  by  the  agent  to  the  plaintiff  with  the  inten- 
tion of  giving  him  a  temporary  credit  for  the  premium,  this  would 
be  a  delivery  that  would  bind  the  company  so  that  the  policy  would 
be  operative  and  in  force. 

Order  reversed.' 


'  "  The  contention  is  that,  under  one  clause  of  the  policy  quoted  above,  there 
could  be  no  such  waiver  by  any  officer  or  agent  of  the  company,  because  no 
such  '  waiver  or  extension  in  express  lerms  and  in  writing,  signed  by  the  presi- 


INSURANCE   AGENTS.  517 

b.  Agent  of  the  Insured  or  Insurer? 

KAUSAL  V.  MINNESOTA  FARMERS'   MUTUAL  FIRE 

INS.  CO. 
31  Minn.  17.  —  1883. 
The  plaintiffs  brought  this  action  in  the  District  Court  for  Hen- 
nepin County  to  recover  upon  a  policy  of  insurance  against  fire, 
issued  to  them  jointly  by  the  defendant,  upon  a  certain  house  and 
furniture  in  which  they  allege  that  they  had  an  insurable  interest, 
and  which  were  subsequently  destroyed  by  fire.  The  answer  of  the 
defendant  admits  the  issuance  of  a  joint  policy  to  the  plaintiffs, 
alleges  that  the  same  was  issued  in  reliance  upon  plaintiffs'  applica- 
tion for  membership  in  defendant  and  for  the  insurance  mentioned, 

dent  or  stcreiary  of  the  company,'  as  therein  provided,  was  ever  made.  The 
court  instructed  the  jury,  in  effect,  that  the  local  agent  had  no  such  authority, 
and  that  any  action  by  him  in  that  regard,  without  the  knowledge  or  approval 
of  somebody  higher  in  authorfiy,  would  be  ineffectual  as  against  it.  This  is 
within  the  ruling  in  Hankins  v .  Rock  ford  his.  Co.,  70  Wis  i.  But  the  clause  of 
the  policy  referred  to  is  claimed  10  be  broad  enough  to  include  the  general  ageni, 
and  in  fact  e^'ery  officer  and  agent  of  the  company,  except  the  president  and 
secretary,  —  and  even  them,  unless  the  act  be  in  express  terms  and  in  writing, 
signed  by  one  of  them.  We  must  hold,  however,  that  such  attempted  restric- 
tions upon  the  power  of  the  company  or  its  general  officers  or  agents,  acting 
within  the  scope  of  their  general  authority,  to  subsequently  modify  the  contract 
and  bind  the  company  in  a  manner  contrary  to  such  previous  conditions  in  the 
policy,  are  ineffectual.  Especially  is  this  true  in  respect  to  a  foreign  insurance 
company,  whose  officers  are  practically  inaccessible  to  the  assured.  These 
views  are  in  harmony  with  the  repeated  rulings  of  this  court.  Gaiis  v.  St.  Paul 
F.  iff  M.  Ins.  Co.,  43  Wis.  108;  Am.  Ins.  Co.  v.  Gallatin,  48  Wis.  36;  Shajcr  v. 
Ph(£nix  Ins.  Co.,  53  Wis,  361.  The  same  principle  has  been  sanctioned  in  well- 
considered  opinions  of  other  courts.  Lamherton  v.  Connecticut  F.  Ins.  Co., 
(Minn.)  39  N.  W.  Rep.  76;  Willcuts  v.  Northwestern  M.  L.  Ins.  Co.,  81  Ind.  308; 
Steen  v.  Niagara  F.  Ins.  Co.,  89  N.  Y.  326;  Richmond  v .  Niagara  F.  Ins.  Co.,  79 
N.  Y.  230;  Eastern  R.  Co.  v.  Relief  F.  Ins.  Co.,  105  Mass.  570;  American  L.  Ins. 
Cc.  V,  Green,  57  Ga.  469;  PVestchester  F.  Ins.  Co.  v.  Earle,  33  Mich,  143."  — 
Renier  v.  Ins.  Co.,  74  Wis.  89,  97  (1889). 

In  Marvin  v.  Co.,  85  N.  Y.  278,  282  (1881),  thecourt  says:  "  Thepolicy contained 
an  express  provision  that  any  alteration  or  waiver  of  its  conditions,  '  unless  made 
at  the  head  office,  and  signed  by  an  officer  of  said  company,  shall  not  be  consid- 
ered as  valid.'  Granting,  therefore,  that  Henkle  was  shown  to  be  a  general  agent 
of  this  company;  granting  also  what  was  not  proved,  but  perhaps  may  be 
inferred  from  the  character  of  his  office.  {Carroll  v.  Charter  Oak  Ins.  Co.,  i  Abb. 
Ct.  App.  318;  Sheldon  V.  The  Atlantic  Fire  and  Marine  Ins.  Co.,  26  N.  Y.  465,) 
that  he  had  authority,  unless  restricted,  to  waive  conditions;  the  difficulty 
remains  that  he  was  in  that  respect  restricted,  and  his  authority  limited  and 
curtailed,  by  an  express  provision  in  the  policy  itself,  thus  brought  to  the  knowl- 
edge  of  the  assured,  and,  therefore,  had  no  power,  in  and  of  himself,  to  waive 
the  condition  of  payment,  or  agree  that  it  should  be  waived." 


5l8  INSURANCE    AGENTS. 

and  upon  the  statements  and  answers  contained  in  such  application, 
which  the  plaintiffs  agreed  should  be  warranties  on  their  part;  that 
"  in  and  by  said  policy  it  is  provided  that  any  misrepresentation  by 
the  assured  of  the  value,  condition,  situation,  title  or  occupancy  of 
the  property,  or  any  omission  to  make  known  every  fact  material 
to  the  risk,  or  any  misrepresentation  whatever,  or  fraud,  or  attempt 
at  fraud,  whether  m  written  application  or  otherwise,  or  fraud,  or 
false  swearing  in  proofs  of  loss,  shall  cause  a  forfeiture  of  all  claims 
under  the  policy,"  and  "  that  if  the  interest  of  the  assured,  whether 
as  owner,  or  trustee,  factor,  agent,  or  mortgagee,  lessee  or  other- 
wise, be  not  truly  stated,  then   the  policy  shall  be  null  and  void." 


Oral  Waiver  in  New  York  under  Standard  Fire  Policy.  In  Moore  v.  Ins. 
Co.,  141  N.  Y.  219,  223  (.1S94),  the  court  says:  "  The  sole  question  is  the  con- 
struction of  the  standard  policy  issued  under  the  requirements  of  chapter  488, 
Laws  of  1886.  The  precise  point  involved  in  this  case  has  been  before  this 
court  frequently  since  the  enactment  of  the  law  of  1886.  The  use  of  the  stand- 
ard policy  was  compelled  by  legislative  enactment  to  remedy  existing  evils, 
and,  among  others,  to  protect  insurance  companies  from  the  perils  of  alleged 
parol  waivers  by  their  local  agents.  Every  person  who  now  enters  into  a  con- 
tract of  insurance  is  required  to  agree  that  no  officer  or  agent  or  other  representa- 
tive of  the  company  shall  have  power  10  waive  any  provision  or  condition  of 
the  policy,  except  such  as  by  the  terms  thereof  may  be  subject  of  agreement 
indorsed  thereon,  and  as  to  such  provisions  and  conditions  the  waiver  must  be 
written  upon  or  attached  to  the  policy,  and  he  specially  covenants  that  he  will 
not  claim  any  privilege  or  permission  unless  it  be  in  writing.  The  judgment 
appealed  from  ignores  the  plain  provisions  of  the  contract  of  the  parties  relat- 
ing to  foreclosure  and  waiver,  and  is  contrary  to  the  decisions  of  this  court  on 
the  precise  point  presented  now,  and  others  which  involve  the  same  principle 
of  construction.  In  Qitinlan  v.  Providence  Washington  Ins.  Co.,  133  N.  Y.  356, 
the  necessity  of  notice  in  case  of  foreclosure  was  considered.  Judge  Andrews, 
in  discussing  the  question  of  alleged  waiver,  said  (p.  363):  '  It  is  to  be  assumed 
that  Kelsey  '  (the  agent  of  the  company)  '  learned  of  the  commencement  of  the 
foreclosure  proceedings,  and  thereupon  assured  the  plaintiff  that  his  rights 
under  the  policy  would  not  be  prejudiced  thereby.'  Again,  at  page  366,  after 
holding  that  the  principle  that  courts  lean  against  forfeitures  is  unimpaired, 
says:  '  But  where  the  restrictions  upon  the  agent's  authority  appear  in  the 
policy,  and  there  is  no  evidence  tending  to  show  that  his  powers  have  been 
enlarged,  there  seems  to  be  no  good  reason  why  the  authority  expressed  should 
not  be  regarded  as  the  measure  of  his  power;  nor  is  there  any  reason  why  courts 
should  refuse  to  enforce  forfeitures  plainly  incurred,  which  have  not  been 
expressly  or  impliedly  waived  by  the  company.'  The  following  cases  are  also 
in  harmony  with  these  views,  viz.:  Armstrong;  v.  Agri.  Ins.  Co.,  130  N.  Y.  560; 
Baiimis^artfl  v.  Prov.  W.  Ins.  Co.,  136  Id.  547;  Allen  v.  German  Am.  Ins.  Co., 
123  Id.  6;  Messelback  v.  N'orman,  122  Id.  583;  O'Brien  v.  Prescott  Ins.  Co.,  134 
Id.  28;  Lett  V.  Guardian  Fire  Ins.  Co.,  125  Id.  82."  In  Sergent  v.  Ins.  Co.,  155 
N.  Y.  349,  355  (1898)  the  court  savs:  "  This  is  an  action  upon  the  usual 
standard   policy  ol   fire   insurance.     *     *     *     While  it  is  true  that  the  policy 


INSURANCE   AGENTS.  519 

The  answer  further  alleges  that  in  their  application  the  plaintiffs 
stated  that  they  were  the  owners  of  the  property  described  in  the 
application,  and  that  such  statement  was  false;  that  in  such  applica- 
tion the  plaintiffs  stated  that  there  was  no  incumbrance  upon  any  of 
the  property  described,  and  that  such  statement  was  false,  specifying 
certain  incumbrances;  that  in  such  application  the  plaintiffs  stated 
that  the  dwelling-house  described  was  completed  and  painted,  and 
that  it  was  used  and  occupied  as  a  dwelling-house  solely,  and  that 
such  statements  were  false.  The  answer  also  contains  allegations  of 
false  swearing  in  the  proofs  of  loss,  of  negligence  of  plaintiffs  causing 
the  fire,  and  of  the  amount  recoverable  under  the  policy,  and  denies 
the  alleged  value  of  the  property  destroyed. 

in  suit  contained  the  usual  clause  as  to  proofs  of  loss  being  filed  pvithin  sixty 
days,  and  that  no  officer,  agent  or  other  representative  of  the  company  should 
have  power  to  waive  any  condition  thereof,  except  by  written  agreement 
indorsed  thereon,  yet,  a  party  to  a  contract  containing  such  a  provision  may,  by 
conduct,  estop  himself  from  enforcing  it  against  one  who  has  acted  in  reliance 
upon  such  conduct.  He  may  also  be  estopped  by  the  act  of  an  agent  who  pos- 
sesses, or  whom  he  has  held  out  to  possess  this  power  in  respect  to  the  pro- 
vision.    Bishop  K.  Agricultural  Ins.  Co.,  130  N.  Y.  488." 

Oral  Waiver  in  Massachusetts  under  the  Standard  Fire  Policy.  —  In 
Parker  v.  Ins.  Co.,  162  Mass.  479,  an  agent  of  an  insurance  company,  to  whom 
the  company  had  intrusted  blank  policies  of  the  Massachusetts  standard  form, 
signed  by  the  president  and  secretary,  with  authority  to  countersign  and  issue 
such  policies,  "  and  by  writing  indorsed  thereon  to  renew  any  such  policies,  or 
to  vary  the  risk  therein,"  and  providing  that  all  his  powers  are  to  be  exercised 
subject  to  the  rules  and  regulations  of  the  company,  "  and,  when  provision  is 
made  therefor  in  such  policy  in  the  manner  provided  therein,"  was  held  to  have 
no  authority  to  give  an  oral  assent  to  the  removal  of  property  insured;  the 
policy  containing  a  condition  requiring  the  written  or  printed  assent  of  the  com- 
pany to  such  removal.  The  court  said:  "  It  might,  however,  be  suggested 
that  the  agents  orally  agreed  to  give  a  written  assent  in  the  future  to  the 
removal  of  the  property,  and  that  such  oral  agreement  is  binding  upon  the  defend- 
ant. This  position,  if  tenable,  would  to  a  great  extent  do  away  with  the  pro- 
tection and  safeguards  which  the  requirement  of  a  writing  was  designed  to 
secure.  There  is  nothing  to  show  that  the  agents  had  authority  to  enter  into 
such  oral  agreement  in  behalf  of  the  company,  though  perhaps  they  might 
themselves  oe  bound  thereby.  It  might  further  be  suggested  that  the  agents 
ould  by  indirection  evade  the  provision  requiring  a  written  assent  to  the 
removal;  that  is,  that  they  might  consent  to  a  cancellalion  of  the  policy,  and 
then  agree  orally  to  ?ssue  a  new  policy  to  the  plaintiffs  upon  their  property  in 
the  place  to  which  it  had  been  removed.  Whelher  the  agents  had  power  in  any 
case  to  bind  the  defendant  by  an  oral  agreement  to  issue  a  policy,  we  need  net 
inquire;  but  if  they  had,  it  does  not  follow  that  they  could  also  bind  the  defend- 
ant by  an  oral  assent  to  the  removal  of  the  property.  If  direct  authority  to  do 
a  certain  thing  is  denied,  it  is  not  to  be  inferred  or  implied  because  by  possi- 
bility substantially  the  same  result  may  be  reached  by  indirection." 


520  INSURANCE   AGENTS. 

The  reply  alleges  that  the  plaintiffs  "  are  foreigners,  and  ignorant 
of  the  English  language,  and  did  not  know  what  was  contained  in 
the  application  for  insurance  mentioned  in  said  answer;  that  the 
same  was  made  out  by  an  agent  of  the  defendant,  and  plaintiffs 
signed  the  same  by  his  direction,  without  knowing  the  contents  of 
the  same;  that  the  said  Julia  Kausal  was,  at  the  time  of  such  insur- 
ance, the  owner  of  an  undivided  three-quarters  of  the  land  upon 
which  the  dwelling-house  stood,  and  in  possession  of  all  said  land, 
and  the  said  plaintiff,  William  Kausal,  was  the  owner  of  all  of  said 
dwelling-house;  that  all  of  such  ownership  was  told  to  said  agent 
of  the  defendant  at  the  time  of  such  insurance,  and  the  defendant 
had  at  such  time  due  notice  of  the  same."  The  reply  admits  "  that 
said  house  was  not  painted,"  but  alleges  that  "  the  same  was  com- 
pleted," and  "  that,  at  the  time  the  said  application  was  made,  an 
agent  of  the  defendant,  duly  authorized  to  solicit  insurance  and  to 
take  and  receive  applications  therefor  on  the  part  of  the  defendant, 
was  present  at  the  said  house  so  insured,  and  examined  the  same, 
and  fully  knew  all  the  circumstances  of  its  condition,  and  solicited 
said  insurance,  and  wrote  out  said  application  as  aforesaid,  and  told 
the  plaintiffs  the  same  was  correct,  and  induced  them  to  sign  the 
same."  The  reply  denies  all  other  allegations  than  those  above 
admitted. 

On  the  trial  before  Young,  J.,  and  a  jury  the  defendant  objected 
to  the  reception  of  any  evidence  on  the  part  of  the  plaintiffs,  on  the 
ground  that  it  is  incompetent,  irrelevant  and  immaterial  under  the 
pleadings,  which  objection  was  sustained.  The  plaintiffs  then 
offered  to  prove  all  the  allegations  of  the  reply,  which  offer  was 
rejected,  upon  defendant's  objection,  and,  on  defendant's  motion, 
the  action  was  dismissed  Plaintiffs  appeal  from  an  order  refusing 
a  new  trial 

Mitchell,  J.  —  i.  On  principle,  as  well  as  for  considerations  of 
public  policy,  agents  of  insurance  companies  authorized  to  procure 
applications  for  insurance,  and  to  forward  them  to  the  companies 
for  acceptance,  must  be  deemed  the  agents  of  the  insurers  and  not 
of  the  insured  in  all  that  they  do  in  preparing  the  application,  or 
in  any  representations  they  may  make  to  the  insured  as  to  the 
character  or  effect  of  the  statements  therein  contained.  This  rule 
is  rendered  necessary  by  the  manner  in  which  business  is  now  usually 
done  by  the  insurers.  They  supply  these  agents  with  printed  blanks, 
stimulate  them  by  the  promise  of  liberal  c  )mmissions,  and  then 
send  them  abroad  in  the  community  to  solicit  insurance.  The  com- 
panies employ  them  for  that  purpose,  and  the  public  regard  them  as 
the  agents  of  the  companies  in  the  matter  of  preparing  ani  filling 


INSURANCE   AGENTS,-  52I 

up  the  applications  —  a  fact  which  the  companies  perfectly  under- 
stand. The  parties  who  are  induced  by  these  agents  to  make  appli- 
ations  for  insurance  rarely  know  anything  about  the  general  officers 
of  the  company,  or  its  constitution  and  by-laws,  but  look  to  the 
agent  as  its  full  and  complete  representative  in  all  that  is  said  or 
done  in  regard  to  the  application.  And  in  view  of  the  apparent 
authority  with  which  the  companies  clothe  these  solicitors,  they 
have  a  perfect  right  to  consider  them  such.  Hence,  where  an  agent 
to  procure  and  forward  applications  for  insurance,  either  by  his 
direction  or  direct  act,  makes  out  an  application  incorrectly,  not- 
withstanding all  the  facts  are  correctly  stated  to  him  by  the  appli- 
cant, the  error  is  chargeable  to  the  insurer  and  not  to  the  insured. 
Insurance  Co.  v,  Mahone,  21  Wall  152;  Insurance  Co.  v.  Wilkinson., 
13  Wall.  222;  Malleable  Iron  Works  v.  Phcenix  Ins.  Co..,  25  Conn. 
465;  Hough  V.  Insurance  Co..,  29  Conn.  10;  Woodbury  Sav.  Bank  v. 
Charter  Oak  Fire  6^  Marine  Ins.  Co..,  31  Conn.  517  ;  Miner  v.  Insur- 
ance Co.,  27  Wis.  693;  Winans  v.  Insurance  Co.,  t,^  Wis.  342;  Roivley  v. 
Insurance  Co.,  36  N.  Y.  550;  Brandup  v .  Insurance  Co.,  27  Minn.  393, 
7  N.  W.  735;  2  Am.  Lead.  Cas.  (5th  ed.)  917  et  seq.;  Wood,  Ins., 
c.  12;  May,  ins.,  §  120.' 

2.  After  the  courts  had  generally  established  this  doctrine,  many 
of  the  insurance  companies,  in  order  to  obviate  it,  adopted  the 
ingenious  device  of  inserting  a  provision  in  the  policy  that  the  appli- 
cation, by  whomsoever  made,  whether  by  the  agent  of  the  company 
or  any  other  person,  shall  be  deemed  the  act  of  the  insured  and  not 
of  the  insurer.  But,  as  has  been  well  remarked  by  another  court, 
"  there  is  no  magic  in  mere  words  to  change  the  real  into  the  unreal. 
A  device  of  vvords  cannot  be  impDsed  upon  a  court  in  place  of  an 
actuality  of  fact."  If  corporations  are  astute  in  contriving  such 
provisions,  courts  will  take  care  that  they  shall  not  be  used  as  instru- 
ments of  fraud  or  injustice.     It  wo.dd  be  a  stretch  of  legal  princi- 

'  ■'  The  forms  and  requirements  of  different  insurers  are  different,  and  when 
an  agent,  who  at  the  time  and  place  is  the  sole  representaiive  of  the  principal, 
assumes  to  know  what  information  the  principal  requires,  and  after  bein§f  fur- 
nished with  all  the  facts,  drafts  a  paper  which  he  declares  satisfactory,  induces 
the  other  party  to  sign  it,  receives  and  retains  the  premium  moneys,  and  then 
delivers  a  contract  which  the  other  party  is  led  to  believe,  and  has  a  right  to 
believe,  gives  him  the  indemnity  for  which  he  paid  his  money,  we  do  not  think 
the  insurer  can  be  heard  in  repudiation  of  the  indemnity  on  the  ground  of  his 
agent's  unskillfulness,  carelessness  or  fraud.  If  this  can  be  done  it  is  easy  to 
see  that  community  is  at  the  mercy  of  these  insurance  agents,  who  will  have 
little  difficulty  in  a  large  proportion  of  the  cases,  in  giving  a  worthless  policy 
for  the  mDney  they  receive."  —  ^'Etna  Live  Stock,  etc  ,  Ins.  Co.  v.  Olmstcad,  21 
Mich.  246,  252. 


522  -INSURANCE   AGENTS. 

pies  to  hold  that  a  person  dealing  with  an  agent,  apparently  clothed 
with  authority  to  act  for  his  principal  in  the  matter  in  hand,  could 
be  affected  by  notice,  given  after  the  negotiations  were  completed, 
that  the  party  with  whom  he  had  dealt  should  be  deemed  trans- 
formed from  the  agent  of  one  party  into  the  agent  of  the  other.  To 
be  efficacious,  such  notice  should  be  given  before  the  negotiations 
are  completed.  The  application  precedes  the  policy,  and  the 
insured  cannot  be  presumed  to  know  that  any  such  provision  will 
be  inserted  in  the  latter.  To  hold  that  by  a  stipulation,  unknown 
to  the  insured  at  the  time  he  made  the  application,  and  when  he 
relied  upon  the  fact  that  the  agent  was  acting  for  the  company,  he 
could  be  held  responsible  for  the  mistakes  of  such  agent,  would 
be  to  impose  burdens  upon  the  insured  which  he  never  anticipated. 
Hence  we  think  that  if  the  agent  was  the  agent  of  the  company  in 
the  matter  of  making  out  and  receiving  the  application,  he  cannot 
be  converted  into  the  agent  of  the  insured  by  merely  calling  him 
such  in  the  policy  subsequently  issued.  Neither  can  any  mere  form 
of  words  wipe  out  the  fact  that  the  insured  truthfully  informed  the 
insurer,  through  its  agent,  of  all  matters  pertaining  to  the  applica- 
tion at  the  time  it  was  made.'  We  are  aware  that  in  so  holding  we 
are  placing  ourselves  in  conflict  with  the  views  of  some  eminent 
courts.  But  the  conclusion  we  have  reached  is  not  without  authority 
to  sustain  it,  and  is,  as  we  believe,  sound  in  principle,  and  in  accord- 
ance with  public  policy.  Woods,  Ins.,  §  139;  May,  Ins.,  §  140; 
Insurance  Co.  v.  Ives.,  56  111.  402;  Gans  v.  Insurance  Co..,  43  Wis.  108: 
Insurance  Co.  v.  Cooper.,  50  Pa.  St.  331. 

3.   It  is  contended  by  respondent  that  there  is  a  distinction  in  this 


'  "  '  And  it  is  a  part  of  this  contract  that  any  person  other  than  the  assured, 
who  may  have  procured  this  insurance  to  be  taken  by  this  company,  shall  be 
deemed  to  be  the  agent  of  the  assured  named  in  this  policy,  and  not  of  this 
company  under  any  circumstances  whatever,  or  in  any  transaction  relating  to 
this  insurance.'  Whatever  may  be  the  true  construction  of  the  stipulation  last 
above  quoted,  it  certainly  does  not,  and  in  the  nature  of  things  cannot,  substi- 
tute the  plaintiff  as  the  principal  of  Latimer  &  Co.  in  respect  to  the  contract  of 
insurance,  in  the  place  of  the  company.  The  contract  was  made,  and  the 
defendant  was  undoubtedly  bound  by  it,  from  the  moment  the  policy  was 
delivered  to  the  plaintiff;  and  if  the  stipulation  substitutes  the  plaintiff  for  the 
company  as  the  principal  of  Latimer  &  Co.,  then  it  is  competent  for  a  person  to 
make  a  contract  with  his  own  agent  which  shall  bind  a  third  party  who  is  a 
stranger  to  it,  and  who  never  agreed  to  be  bound  by  it.  This  would  be  a  mani- 
fest absurdity.  As  to  the  clause  that  a  waiver  of  any  condition  of  the  policy 
to  be  binding,  must  be  indorsed  upon  it,  it  is  only  necessary  to  say  it  is  now 
settled  that  this  requirement  may  be  waived  by  parol  or  by  acts  in  pais."  — 
Cans  v.  Jus.  Co.,  43  Wis.  108,  112. 


INSURANCE   AGENTS.  523 

regard  between  "  stock  "  and  "  mutual  "  insurance  companies;  that 
the  difference  in  the  character  of  the  companies  makes  a  difference 
in  the  relative  duties  of  the  applicant  and  the  company,  and  the 
authority  of  the  agents  employed;  that  in  the  case  of  a  mutual  com- 
pany the  application  is  in  effect  not  merely  for  insurance,  but  for 
admission  to  membership  —  the  applicant  himself  becoming  a  mem- 
ber of  the  company  upon  the  issue  of  the  policy.  By  some  courts  a 
•distinction  in  this  respect  is  made  between  the  two  classes  of  com- 
panies. This  distinction  is  usually  based  upon  the  ground  that  the 
stipulations  held  binding  upon  the  insured  are  contained  in  the 
charter  or  by-laws  of  the  company,  and  that  a  person  applying  for 
membership  is  conclusively  bound  by  the  terms  of  such  charter  and 
by-laws.  Such  is  not  this  case,  for  the  stipulations  claimed  to  bind 
the  insured  are  only  in  the  policy.  But,  so  far  as  concerns  the 
■questions  now  under  consideration,  we  fail  to  see  any  distinction 
between  the  two  kinds  of  companies,  and  we  feel  confident  that  the 
average  applicant  for  insurance  is  rarely  aware  of  any.  It  is  true 
that  in  the  case  of  a  mutual  company  the  insured  becomes  in  theory 
a  member  of  the  company  upon  the  issue  of  the  policy.  But  in 
applying  and  contracting  for  insurance  the  applicant  and  the  com- 
pany are  as  much  two  distinct  persons  as  in  the  case  of  a  stock  com- 
pany, and  we  see  no  reason  for  holding  the  agent  who  takes  the 
application  any  less  the  agent  of  the  insurer  in  the  one  case  than  in 
the  other.  The  membership  does  not  begin  until  the  policy  is  issued. 
As  to  all  previous  negotiations  the  agent  acts  only  for  the  company. 
Insurance  Co.  v.  Cooper.,  supra;  May,  Ins.,  §  139  et  seq. 

4.  Verbal  testimony  is  competent  to  show  that  the  application  was 
filled  up  by  the  agent  of  the  company,  and  that  the  facts  were  f  jlly 
and  c'^rrectly  stated  t')  him,  but  that  he,  without  the  knowledge  of 
the  insured,  misstated  them  in  the  application.  This  was  not  in 
violation  of  the  rule  that  verbal  testimony  is  not  admissible  to  vary 
a  written  contract.  It  proceeds  upon  the  ground  that  the  contents 
of  the  paper  was  not  his  statement,  though  signed  by  him,  and  that 
the  insurance  company,  by  the  acts  of  their  agent  in  the  matter,  are 
estopped  to  set  up  that  it  is  the  representation  ot  the  insured. 
Insurance  Co.  v.  IVilkinson,  supra;  May,  Ins.,  §  143,  and  cases  cited, 
oote  3.     *     *     * 

Order  reversed. 


524  INSURANCE   AGENTS. 

FoLGER,  J.,  IN  WHITED  z:  GERMANIA  FIRE  INSUR- 
ANCE CO. 

76  N.  Y.  415.  41S.  —  1879. 

The  defense  against  the  action  is:  That  the  policy  contained 
certain  conditions,  and  that  they  were  broken  by  the  plaintiff:  First, 
that  if  the  property  insured  should  be  sold,  the  policy  should  become 
void;  and  that  it  was  sold.  Second,  that  if  the  interest  of  the 
assured  in  the  property  is  not  truly  stated  in  it,  it  should  become  void ; 
and  that  the  interest  of  the  plaintiff  in  the  property  became  that  of 
a  mortgagee,  and  was  not  so  stated  in  the  policy,  nor  in  the  renewal 
certificates.  Third,  that  anything  less  than  a  distinct,  specific 
agreement,  clearly  expressed,  and  indorsed  on  the  policy,  should  not 
be  construed  as  a  waiver  of  any  condition  therein. 

Those  conditions  do  appear  in  the  policy,  and  it  is  true  that  the 
relation  of  the  plaintiff  did  change,  as  is  alleged,  and  that  the 
change  is  not  noted  in,  or  indorsed  in  writing  on,  the  policy,  or 
either  of  the  certificates. 

But  the  plaintiff  puts  in  the  way  of  that  defense  that  the  defend- 
ant waived  those  conditions. 

Upon  the  facts  in  the  case,  as  settled  by  the  verdict,  there  was  a 
parol  waiver  of  the  conditions  rested  upon  by  the  defendant  and  a 
parol  consent  to  keep  on  foot  the  insurance  of  the  plaintiff  in  his 
new  status  of  mortgagee;  if  Harmon  was  the  agent  of  the  defendant 
in  the  dealing  for  the  last  renewal,  and  not  the  agent  of  the  plaintiff. 
Fi's/i  V.  Cotteiiet,  44  N.  Y.  538;  Shear f nan  v.  Niagara  Fire  Ins.  Co., 
46  Id.  526;  Pechner  v.  Phcenix  Ins.  Co.,  65  Id.  195;  Vaji  Schoickv. 
Niagara  Fire  Ins.  Co.,  68  Id.  434;  Bidwell  v.  No.  West  Ins.  Co.,  24 
Id.  302.  That  he  was  the  agent  of  the  defendant  it  would  be  fatuous 
to  deny,  were  it  not  for  a  clause  in  the  policy,  upon  which  the 
defendant  builds.  That  clause  is  in  this  wise:  That  any  person 
other  than  the  assured,  who  may  have  procured  the  insurance  to  be 
taken,  shall  be  deemed  to  be  the  agent  of  the  assured,  and  not  of 
the  company,  under  any  circumstances  whatever,  or  in  any  transac- 
tion relating  to  this  insurance.  That  clause  we  have  held  to  be 
forceful  in  Rohrbach  v.  Germania  Fire  Ins.  Co.,  62  N.  Y.  47,  and 
Alexander  v.  Same  Defendant,  66  Id.  464.  We  have  not  held  it  so  as 
yet,  further  than  the  scope  of  the  facts  in  those  cases.  The  case  in 
66  New  York  hangs  upon  that  in  62  New  York.  In  the  latter  case, 
it  was  held  that  as  the  insured  had  contracted  that  the  person  who 
procured  the  insurance  should  be  deemed  his  agent,  he  must  abide 
by  his  agreement;  and  that  though,  through  fault  or  mistake,  that 
person  had,   in  the  application  for  a  policy,  misstated  to  the  com- 


INSURANCE   AGENTS.  52$ 

pany  the  declarations  of  the  assured,  whereby  there  had  been 
wrought  an  untrue  representation,  yet  that  as  he  had  been  agreed 
upon  as  the  agent  of  the  insured,  the  insured  must  suffer  for  the 
error  or  the  wrong.  That  case  dealt  with  matters  before  the  issu- 
ing of  the  policy.  It  is  so,  that  the  clause  in  the  policy  is  broad, 
and  takes  into  the  fold  of  its  wording  any  circumstances  whatever, 
and  any  transaction  relating  to  the  insurance.  In  its  verbal  scope 
it  has  to  do  with  acts  as  well  after  as  before  and  at  the  time  of  the 
giving  out  of  the  policy.  But  if  the  insured  is  to  be  now  bound  as 
having  thus  contracted,  there  must  be  mutuality  in  the  contract. 
No  man  can  serve  iwo  masters.  If  the  procurer  of  the  insurance  is 
to  be  deemed  the  agent  of  the  insured,  and  Harmon  is  to  be  deemed 
such  procurer,  he  may  not  be  taken  into  the  service  of  the  insurer 
as  its  agent  also;  or  if  he  is  so  taken,  the  insurer  must  be  bound  by 
his  acts  and  words,  when  he  stands  in  its  place  and  moves  and  speaks 
as  one  having  authority  from  it;  Sitid pro /lac  rice,  at  least,  he  does 
then  rightfully  put  off  his  agency  for  the  insured,  and  put  on  that 
for  the  insurer.  Hence  it  was  that  \xi  Spragiie  v.  Holland  Pwchase 
Ins.  Co.,  69  N.  Y.  128,  we  held  that  the  same  clause  in  the  policy 
there  put  out  by  that  defendant  did  not  make  the  insured  the  princi- 
pal. In  that  policy  the  insurer  had,  besides  the  clause  just  named, 
put  the  condition  hostile  to  it  that  the  application  must  be  mide  out 
by  an  authorized  agent  of  the  insurer;  and  we  held  that  the  latter 
swallowed  down  the  former.  In  the  case  in  hand  the  defendant  has 
declared,  over  the  hands  of  its  president  and  secretary,  that  a 
renewal  certificate  from  it  will  not  be  valid  unless  countersigned  by 
the  duly  authorized  agent  of  the  company  at  Oswego,  New  York. 
It  had  before  sent  two  such  certificates  to  Harmon,  which  he  had 
countersigned  as  such  agent,  and  delivered  to  the  plaintiff.  The 
plaintiff  had  paid  to  him  the  premiums  for  those  renewals,  and  he 
had  sent  them  to  the  defendant.  The  defendant  treated  these  two 
certificates  as  valid,  because  countersigned  by  Harmon.  Tiiereby 
it  asserted  that  Harmon  was  its  duly  authorized  agent.  It  held  him 
up  to  the  plaintiff  as  such.  It  knew,  then,  that  those  certificates 
had  been  put  out  and  taken  as  valid;  and  it  must  have  known  that 
it  was  so,  because  Harmon  thought,  and  the  plaintiff  thought,  and 
that  both  had  reason  from  the  conduct  of  the  defendant  to  think, 
that  Harmon  was  the  duly  authorized  agent  of  the  defendant.  It 
is  too  late,  after  letting  those  two  go  out  as  valid  and  the  third  like 
certificate  has  been  issued  and  premium  paid,  for  it  to  say  that  Har- 
mon is  not  the  agent  of  the  defendant  therein,  and  that  he  is  the 
agent  of  the  plaintiff.  The  defendant  must  have  some  living,  sen- 
tient touch  of  those  doing  business   with  it,  and    when  it   reposes 


526  INSURANCE   AGENTS. 

confidence  in  the  actor  therein  and  gives  him  discretionary  power 
to  bind  and  loose,  it  is  idle  to  say  that  he  is  not  its  agent  thereto. 
The  law  is  too  severe  to  brook  such  an  absurdity.  Nor  will  it  hold 
the  plaintiff  so  strictly  to  the  contract  he  made  as  to  permit  the 
defendant  to  ignore  it  and  take  his  agent  as  its  agent,  and  yet  make 
him  suffer  for  all  the  shortcomings  of  that  person  while  acting 
between  them,  and  while  under  authority  from  the  defendant  to  act 
for  it.  Should  it  be  granted  that  Harmon  was  the  agent  of  the 
plaintiff,  ever,  then  comes  this  rule,  that  one  employing  the  agent 
of  another  cannot  take  advantage  from  the  acts  and  omissions  of 
that  agent  to  the  harm  of  his  principal  It  is  a  rule  that  if  one 
principal  to  a  contract  deal  surreptitiously  with  the  agent  of  the 
other  principal,  it  is  a  fraud  upon  the  other  principal.  The  defrauded 
one,  if  he  comes  in  time,  is  entitled  at  his  option  to  have  the 
contract  rescinded;  or  if  he  elects  not  to  have  it  rescinded,  to  have 
such  other  adequate  relief  as  the  court  may  think  right  to  give  him, 
P.  ^  S.  P.  Tel.  Co.  V.  Ind.  Rub.,  Gut.  Perch,  ami  Tel.  W.  Co.,  lo 
Chy.  App.  Cas.  526.  The  principle  should  be  applied  in  the  case 
in  hand  to  the  aid  of  Whited. 

The  case,  then,  is  that  of  the  holder  of  a  policy  asking  for  a 
renewal  of  it,  and  making  known  to  the  agent  of  the  insurer  the 
facts  which  have  made,  or  will  make,  a  breach  of  some  of  the  con- 
ditions m  it,  and  thereupon  receiving  from  that  agent  a  written 
renewal  certificate,  after  payment  and  receipt  of  the  premium,  and 
having  from  him  a  promise  that  he  would  "  make  it  all  right."  The 
powers  of  the  agent  were  such  as  that  the  transaction  with  him  was 
the  same  as  if  done  with  the  defendant;  it  is  bound  as  fully  as  if  it 
were  so.  There  was  thus  a  perfect  waiver  of  those  conditions  of 
the  policy,  and  it  remained  a  valid  contract  for  another  term.  When 
the  loss  insured  against  happened,  the  defendant  became  liable 
to  pay,  and  has  shown  no  real  defense  against  the  action.' 


'  Upon  provisions  of  the  character  in  question  there  is  now  a  diversity  of 
opinion  in  the  intermediate  appellate  court?  in  New  York.  The  provision  is 
held  effective  in  Bernard  v.  Ins.  Co.,  14  App.  D.  142,  (First  Department.  1897) 
and  in  Sternaman  v.  Ins.  Co.,  49  App.  D.  473,  (Fourth  Department,  1900);  and 
ineffective  in   O' Far r ell  v.  Ins.  Co.,  22  App.  D.  495,  (Second  Department,  1897). 

The  Court  of  Appeals  has  held  the  provision  effective  where  the  agent  was  an 
insurance  broker.     Allen  v.  Ins.  Co.,  123  N.  Y.  6. 


INSURANCE    AGENTS.  52/ 

NEW  YORK  LIFE  INSURANCE  CO.  v.  FLETCHER. 

117  U.  S.  519.  —  1886. 

The  New  York  Life  Insurance  Company,  on  the  22d  of  Decem- 
ber, 1877,  issued  at  its  liome  office  in  the  city  of  New  York  to  Chi- 
nonda  S.  Alford  a  policy  of  insurance  upon  his  life  for  the  sum  of 
$10,000.  The  assured  was  a  resident  of  Missouri,  and  in  December, 
1877,  he  applied  to  an  agent  of  the  company  there  for  such  a  policy, 
and  submitted  to  an  examination.  He  also  made  certain  statements 
and  representations  respecting  himself,  his  life,  and  his  past  and 
present  health,  to  which  he  appended  a  declaration,  warranting 
their  truthfulness  and  agreeing  that  they  should  be  the  basis  of  any 
contract  between  him  and  the  company,  and  that  if  they,  or  any  of 
them,  were  in  any  respect  untrue,  the  policy  which  might  be  issued 
thereon  should  be  void,  and  that  all  moneys  paid  on  account  of  that 
insurance  should  be  forfeited;  and  further  agreeing,  that,  inasmuch 
as  only  the  officers  at  the  home  office  had  authority  to  determine 
whether  or  not  a  policy  should  issue  on  any  application,  and  as  they 
acted  only  on  the  written  statements  and  representations  referred 
to,  no  statements  or  representations  made  or  information  given  to 
the  persons  soliciting  or  taking  the  application  for  the  policy,  should 
be  binding  on  the  company  or  in  any  manner  affect  its  rights,  unless 
they  were  reduced  to  writing  and  presented  at  the  home  office  in  the 
application.  To  the  policy  was  annexed  a  copy  of  the  application, 
and  upon  it  was  endorsed  the  following  notice  in  red  type  and  con- 
spicuously printed: 

"  For  the  information  of  the  assured,  and  in  order  that  any  unin- 
tentional errors  or  omissions  which  hereafter  may  be  found  to  exist 
may  be  corrected,  an  abstract  of  the  application  upon  which  this 
policy  is  based  may  be  found  in  the  third  page  within.  If  correc- 
tions are  desired,  when  satisfactory  to  the  company,  a  certificate  to 
that  effect  will  be  issued  over  the  signature  of  the  president  and 
actuary." 

Payment  of  the  insurance  money  was  refused  on  the  alleged 
ground  of  false  statements  and  representations  in  the  application. 
Thereupon  the  executor  brought  this  action  in  a  court  of  Missouri, 
and  upon  the  petition  of  the  company  it  was  removed  to  the  Circuit 
Court  of  the  United  States.  The  plaintiff  obtained  a  verdict  for  the 
full  amount  of  the  insurance  money  with  interest,  upon  which  judg- 
ment was  rendered. 

Mr.  Justice  Field.  —  It  is  conceded  that  the  statements  and 
representations  contained  in  the  answers,  as  written,  of  the  assured 
to  the  questions  propounded  to  him  in  his  application,  respecting 


528  INSURANCE    AGENTS. 

his  past  and  present  health,  were  material  to  the  risk  to  be  assumed 
by  the  company,  and  that  the  insurance  was  made  upon  the  faith  of 
tnem,  and  upon  his  agreement  accompanying  them  that,  if  they  were 
false  in  any  respect,  the  pohcy  to  be  issued  upon  them  should  be  void. 
It  is  souglit  to  meet  and  overcome  the  force  of  this  coaceded  fact 
by  proof  that  he  never  made  the  statements  and  representations  to 
which  his  name  is  signed;  that  he  truthfully  answered  those  ques- 
tions; that  false  answers  written  by  an  agent  of  the  company  were 
inserted  in  place  of  those  actually  given,  and  were  forwarded  with 
the  application  to  the  home  office;  and  it  is  contended  that,  such 
proof  being  made,  the  plaintiff  is  not  estopped  from  recovering. 
But  on  the  assumption  that  the  fact  as  to  the  answers  was  as  stated, 
and  that  no  further  obligation  rested  upon  the  assured  in  connec- 
tion with  the  policy,  it  is  not  easy  to  perceive  how  the  company  can 
be  precluded  from  setting  up  their  falsity,  or  how  any  rights  upon 
the  policy  ever  accrued  to  him.  It  is,  of  course,  not  necessary  to 
argue  that  the  agent  had  no  authority  from  the  company  to  falsify 
the  answers,  or  that  the  assured  could  acquire  no  right  by  virtue  ot 
his  falsified  answers.  Both  he  and  the  company  were  deceived 
by  the  fraudulent  conduct  of  the  agent.  The  assured  was  placed  in 
the  position  of  making  false  representations  in  order  to  secure  a 
valuable  contract  which,  upon  a  truthful  report  of  his  condition, 
could  not  have  been  obtained.  By  them  the  company  was  imposed 
upon  and  induced  to  enter  into  the  contract.  la  such  a  case,  assum- 
ing that  both  parties  acted  in  good  faith,  justice  would  require  that 
the  contract  be  cancelled  and  the  premiums  returned.  As  the 
present  action  is  not  for  such  a  cancellation,  the  only  recovery  whicii 
the  plaintiff  could  properly  have  upon  the  facts  he  asserts,  taken  in 
connection  with  the  limitation  upon  the  powers  of  the  agent,  is  for 
the  amount  of  the  premiums  paid,  and  to  that  only  would  he  be 
entitled  by  virtue  of  the  statute  of  Missouri. 

But  the  case  as  presented  by  the  record  is  by  no  means  as  favor- 
able to  him  as  we  have  assumed.  It  was  his  duty  to  read  the  appli- 
cation he  signed.  He  knew  that  upon  it  the  policy  would  be  issued, 
if  issued  at  all.  It  would  introduce  great  uncertainty  in  all  business 
transactions,  if  a  party  making  written  proposals  for  a  contract, 
with  representations  to  induce  its  execution,  should  be  allowed  to 
show,  after  it  had  been  obtained,  that  he  did  not  know  the  coatents 
of  his  proposals,  and  to  enforce  it,  notwithstanding  their  falsity  as 
to  matters  essential  to  its  obligation  and  validity.  Contracts  could 
not  be  made,  or  business  fairly  conducted,  if  such  a  rule  should  pre- 
vail; and  there  is  no  reason  why  it  should  be  applied  merely  to 
contracts  of  insurance.     There  is  nothing  in  their  nature  which  dis- 


INSURANCE   AGENTS.  529 

tinguishes  them  in  this  particular  from  others.  But  here  the  right 
is  asserted  to  prove  not  only  that  the  assured  did  not  make  the 
statements  contained  in  his  answers,  but  that  he  never  read  the 
application,  and  to  recover  upon  a  contract  obtained  by  representa- 
tions admitted  to  be  false,  just  as  though  they  were  true.  If  he 
had  read  even  the  printed  lines  of  his  application,  he  would  have 
seen  that  it  stipulated  that  the  rights  of  the  company  could  in  no 
respect  be  affected  by  his  verbal  statements,  or  by  those  of  its 
agents,  unless  the  same  were  reduced  to  writing  and  forwarded  with 
his  application  to  the  home  office.  The  company,  like  any  other 
principal,  could  limit  the  authority  of  its  agents,  and  thus  bind  all 
parties  dealing  with  them  with  knowledge  of  the  limitation.  It 
must  be  presumed  that  he  read  the  application,  and  was  cognizant 
of  the  limitations  therein  expressed.  \^Here  folloivs  a  statement  of 
Insurance  Co.  v.  Wolff,  95  U.  S.  326;'  Insurance  Co.  w  JVorton,  96 
U.  S.  240;  and  Loehner  v.  Ins.  Co.  17  Mo.  247.] 

The  present  case  is  very  different  from  Insurance  Co.  v.  Wilkinson^ 
13  Wall.  222,"  and  from  Insurance  Co.  v.  Mahone,  21  Wall.  152.  In 
neither  of  these  cases  was  any  limitation  upon  the  power  of  the 
.igent  brought  to  the  notice  of  the  assured.  Reference  was  made 
to  the  interested  and  officious  zeal  of  insurance  agents  to  procure 
contracts,  and  to  the  fact  that  parties  who  were  induced  to  take 
out  policies  rarely  knew  anything  concerning  the  company  or  its 
officers,  but  relied  upon  the  agent  who  had  persuaded  thsm  to  effect 
insurance,  "  as  the  full  and  complete  representative  of  the  com- 
pany in  all  that  is  said  or  done  in  making  the  contract,"  and  the 
court  held  that  the  powers  of  the  agent  dive  prima  facie  coextensive 
with  the  business  entrusted  to  his  care,  and  would  not  be  narrowed 
by  limitations  not  communicted  to  the  person  with  whom  he  dealt. 
Where  such  agents,  not  limited  in  their  authority,  undertake  to 
prepare  applications  and  take  down  answers,  they  will  be  deemed 
as  acting  for  the  companies.  In  such  cases  it  may  well  be  held  that 
the  description  of  the  risk,  though  nominally  proceeding  from  the 
assured,  should  be  regarded  as  the  act  of  the  company.  Nothing 
in  these  views  has  any  bearing  upon  the  present  case.  Here  the 
power  of  the  agent  was  limited,  and  notice  of  such  limitation  given 
by  being  embodied  in  the  application,  which  the  assured  was 
required  to  make  and  sign,  and  which,  as  we  have  stated,  he  must 
be  presumed  to  have  read.  He  is,  therefore,  bound  by  its  state- 
ments.     \^Here  follows  a  statement  of  Ryan  v.  Ins.  Co.  41  Conn.  168  ] 

'  Reported  herein  at  p.  -1S2 
'  Repotted  herein  at  o    .\z\ 

LAW  OF   INSIR  WCK —  -- i 


530  INS'JRAN'CE    AGENTS. 

The  instruction  given  to  the  jury  in  the  case  before  us  is,  in  effect, 
that  the  assured  was  b^und  by  his  application  if  it  was  not  avoided 
for  fraud,  and  that  it  was  so  avoided  by  reason  of  the  false  state- 
ments contained  in  it,  and  that,  therefore,  the  pl.-'intiff,  as  his  rep- 
resentative, could  recover.  But  if  the  application  was  avoided,  it 
would  seem  to  be  a  necessary  consequence  that  the  policy  itself  was 
also  avoided,  and  his  right  limited  to  recovering  the  premiums  paid. 
But  such  was  not  the  conclusion  of  the  court.  It  directed  the  jury 
that  if  the  application  was  avoided  for  fraud,  he  could  recover.  It 
does  not  seem  to  have  occurred  to  the  court  that  had  the  answers 
been  truthfully  reported,  and  the  fact  of  the  assured  having  had 
diabetes  within  a  recent  period  been  thus  disclosed,  the  insurance 
would  in  all  probability  have  been  refused.  If  the  policy  can  stand 
with  the  application  avoided,  it  must  stand  upon  parol  statements 
not  communicated  to  the  company.  This,  of  course,  cannot  be 
seriously  maintained  in  the  face  of  its  notice  thaf  only  statements 
in  writing  forwarded  to  its  officers  would  be  considered.  A  curious 
result  is  the  outcome  of  the  instruction.  If  the  agents  committed 
no  fraud  the  plaintiff  cannot  recover,  for  the  answers  reported  are 
not  true;  but  if  they  did  commit  the  imputed  fraud  he  may  recover, 
although,  upon  the  answers  actually  given,  if  trul}'^  reported,  no 
policy  would  have  issued.  Such  anomalous  conclusions  cannot  be 
maintained. 

There  is  another  view  of  this  case  equally  fatal  to  a  recovery. 
Assuming  that  the  answers  of  the  assured  were  falsified,  as  alleged, 
the  fact  would  be  at  once  disclosed  by  the  copy  of  the  application, 
annexed  to  the  policy,  to  which  his  attention  was  called.  He  would 
have  discovered  by  inspection  that  a  fraud  had  been  perpetrated, 
not  only  upon  himself  but  upon  the  company,  and  it  would  have 
been  his  duty  to  make  the  fact  known  to  the  company.  He  could 
not  hold  the  policy  without  approving  the  action  of  the  agents  and 
thus  becoming  a  participant  in  the  fraud  committed.  The  retention 
of  the  policy  was  an  approval  of  the  application  and  of  its  state- 
ments. The  consequences  of  that  approval  cannot  after  his  death 
be  avoided.  The  court  charged  the  jury  that  if  the  assured  had 
discovered  the  fraud  before  the  policy  was  delivered  and  the  first 
premium  paid,  it  would  have  been  his  duty  to  decline  to  go  any 
further  with  the  transaction;  but  if  he  did  not  discover  the  fraud 
until  after  such  delivery  and  payment,  he  was  not  called  upon  to 
take  any  steps  for  the  cancellation  of  the  contract.  In  other  words, 
the  jury  were  told  that  the  assured  might  take  to  himself  the  benefit 
of  the  fraud  without  responsibility  for  it,  if  he  did  not  discover  it 
until  after  it  was  consummated  —  a  doctrine  without  authority  and 


i:N:5URAiNCE    AGENTS.  53  I 

wholly  indefensible.  No  one  can  claim  the  benefit  of  an  executory 
contract  fraudulently  obtained,  after  the  discovery  of  the  fraud, 
without  approving  and  sanctioning  it.  \_Hc  re  follows  a  statement  of 
Amer.  Ins.  Co.  v.  JVeibergcr,  74  Mo.  167  and  Richardson  v.  Ins.  Co. 
46  Me.  394.] 

Reversed,  and  the  cause  remanded  for  a  new  trial. 


Statutory  Enactments  Declaring  Certain  Persons  to  Be 
Agents  of  the  Insurance  Company.  — Some  States  have  legisla- 
tive acts  of  the  general  character  of  the  following  Wisconsin  statute 
(Rev.  St.  Wis.,  1898,  §  1977):  "  Whoever  solicits  insurance  on 
behalf  of  any  insurance  corporation  or  person  desiring  insurance  of 
any  kind,  or  transmits  an  application  for  or  a  policy  of  insurance, 
other  than  for  himself,  to  or  from  any  such  corporation,  or  who 
makes  any  contract  for  insurance,  or  collects  any  premium  for  insur- 
ance, or  in  any  manner  aids  or  assists  in  doing  either,  or  in  trans- 
acting any  business  of  like  nature  for  any  insurance  corporation,  or 
advertises  to  do  any  such  thing,  shall  be  held  to  be  an  agent  of  such 
corporation,  to  all  intents  and  purposes,  unless  it  can  be  shown  that 
he  receives  no  compensation  for  such  services."  Of  this  act,  the 
court  says,  in  United  Firemen's  Ins.  Co.  ".  Thomas,  92  Fed.  127, 
133:  "Under  this  statute  it  is  held  that  the  rule  was  changed 
which  required  the  insured  at  his  peril  to  know  whether  the  person 
with  whom  he  is  dealing  had  the  power  he  assumed  to  exercise,  or 
whether  he  was  acting  within  the  scope  of  his  authority,  and  that 
one  who  procures  policies  from  an  authorized  agent,  delivers  them, 
and  collects  and  shares  in  the  premium,  is  the  agent  of  the  company, 
Schomer  v  Insurance  Co.,  50  Wis.  575,  7  N.  W.  544;  Knox  v.  Insur- 
ance Co.,  50  Wis.  671,  7  N.  W.  776;  and  that  one  who  applies  for 
insurance,  and  delivers  a  policy  in  a  company  not  represented  by 
him,  but  by  other  agents,  is  its  agent,  Alkan  v.  Insurance  Co.,  53 
Wis.  136,  10  N.  W.  91;  Body  v.  Insurance  Co.,  63  Wis.  157,  23  N, 
W.  132.  But  it  is  also  held  that  the  statute  does  not  change  the 
rule  respecting  the  relations  of  principal  and  agent,  and  cannot  be 
construed  to  prevent  an  insurance  broker  employed  to  procure 
insurance  from  another  from  being  the  agent  of  the  assured  at  the 
same  time  in  procuring  the  policy;  and  the  same  rule  applies  as  in 
other  agencies,  — that  the  principal  is  bound  by  the  acts  and  rep- 
resentations of  the  agent  within  the  scope  of  his  authority.  John 
R.  Davis  lumber  Co.  v.  Hartford  Fire  Ins.  Co.,  95  Wis.  226,  70  N. 
W.  84.  The  true  meaning  of  the  statute  is  well  expressed  in  Han- 
kins  V.   Insurance   Co.,  70   Wis.    i,  35    N.    W.    34:      That   the   word 


532  INSURANCE   AGENTS. 

"  agent  "  is  limited  lo  tiie  acl  of  the  particular  person  doing  one  or 
more  of  the  things  specifically  designated;  in  other  words,  when- 
ever an  insurance  company  authorizes  any  person  to  do  any  one  of 
the  things  thus  specified,  it  cannot  disclaim  the  agency  of  such 
person  in  the  doing  of  anything  necessarily  implied  in  the  specific 
act  thus  authorized,  and  that  the  word  "  agent,"  as  used  in  these 
statutes,  means  as  expressly  stated  in  the  Illinois  statute,  an  author- 
ized agent  of  the  company.  In  /FiW  s.  Insurance  Co.,  126  Mass. 
316,  it  is  said  of  a  similar  statute  that  the  statute  relating  to  agents 
of  insurance  companies  does  not  change  the  relation  of  the  common 
law  regulating  the  power  of  agents  to  bind  their  principals,  and 
that  the  statute  cannot  be  construed  so  as  to  prevent  the  person 
who  is  agent  for  the  insurer  for  some  purpose  by  virtue  of  the  stat- 
ute, from  being  the  agent  of  the  insured  for  other  purposes,  and 
that  he  may  well  be  the  agent  for  each  in  matters  which  do  not 
conflict." 


e.  Duty  to  Principal. 

AMERICAN    STEAM-BOILER    INS.    CO.  v.   ANDERSON    and 

Others. 

130  N.  Y.  134.  —  1891. 

Cross-appeals  from  Superior  Court  of  New  York  city,  General 
Term. 

Action  by  the  American  Steam  Boiler  Insurance  Company  against 
Edward  C.  Anderson  and  George  S.  Stanton  for  damages  for  pro- 
curing the  cancellation  of  policies  of  insurance.  From  a  judgment 
affirming  a  judgment  entered  on  a  verdict  for  plaintiff,  both  parties 
appeal.     Affirmed. 

In  June,  1884,  by  an  instrument  executed  by  the  parties,  the 
plaintiff  appointed  the  defendants  as  its  managers  and  general 
agents  for  the  States  of  New  York,  New  Jersey,  and  Connecticut, 
with  some  local  exceptions.  The  defendants  were  empowered  to 
issue  policies,  and  as  commissions  to  have  thirty  per  cent,  of  the 
premiums  received;  either  of  the  parties  to  terminate  the  agency 
at  pleasure  on  ninety  days'  notice.  In  December,  1885,  a  further 
arrangement  was  made  to  the  effect  that  the  agreement  creating 
such  relation  should  cease  and  determine  on  January  i,  r886,  "  and 
from  that  date  be  null  and  void,"  saving  any  claim  the  plaintiff 
should  then  have  against  the  defendants  for  unpaid  accounts.  As 
such  agents  the  defendants,  in  December,  18S4,  made  two  policies 
to  R.    Iloe  &   Co.,    insuring   them   to   the   amount  of  $50,000  and 


INSURANCE   A(JENrS.  533 

$25,000,  =  $75,000,  for  three  years,  upon  buildings,  engines, 
boilers,  etc.,  against  damages  by  explosion,  for  which  a  premium  of 
$1,125  was  paid,  of  which  the  defendants  retained  $337.50  for  their 
commissions.  Provision  was  made  in  the  policies  for  their  cancella- 
tion at  any  time  at  the  request  of  the  assured,  and  that  in  such 
event  the  plaintiff  should  retain  the  charges  for  inspection  and  the 
customary  short  rates  for  the  term  the  policies  had  been  in  force. 
These  policies  were,  at  the  request  of  the  assured,  canceled  in 
March,  1887,  and  $118.13  ^^  the  premium  were  returned  by  the 
plaintiff,  as  required  by  the  contract  of  insurance.  The  cancellation 
by  R.  Hoe  &  Co.  was  induced  and  procured  by  the  solicitation  of 
the  defendants,  who  had  then  become  the  agents  of  the  Hartford 
Steam-Boiler  Insurance  Company,  and  induced  and  procured  that 
firm  to  take,  in  place  thereof,  insurance  in  the  last  named  company, 
in  consequence  of  which  the  plaintiff  was  required  to  refund  such 
portion  of  the  premium.  The  purpose  of  this  action  was  to  recover 
damages  of  the  defendants  for  thus  causing  the  cancellation  of  the 
policies  and  the  refunding  of  the  amount  repaid,  for  thirty  per  cent. 
of  which,  with  interest,  a  verdict  was  directed  for  the  plaintiff. 

Bradley,  J.  — There  was  upon  the  evidence  no  controversy  of 
fact,  but  the  questions  presented  had  relation  to  the  legal  conse- 
quences, as  between  the  parties,  of  the  action  of  the  defendants  in 
inducing  and  procuring  the  assured  to  surrender  the  plaintiff's  poli- 
cies of  insurance,  and  to  demand  a  rebate  of  the  premium  paid  to 
it.  The  motive  of  the  defendants  for  doing  this  does  not  appear, 
further  than  may  be  implied  from  the  fact  that  the  defendants  also 
induced  R.  Hoe  &  Co.,  the  assured,  to  take  in  lieu  thereof  insurance 
in  the  Hartford  Steam-Boiler  Insurance  Company,  which  the  defend- 
ants then  represented.  Their  relation  of  agency  to  the  plaintiff  had 
terminated  by  the  terms  of  their  contract  with  it  in  that  respect, 
and  they  had  rightfully  become  the  agents  of  the  rival  company  in 
the  business  of  like  insurance.  Their  relation  with  the  latter  com- 
pany required  the  defendants  to  subserve  its  interest  faithfully  and 
diligently,  and  consistently  with  that  relation  it  was  in  the  line  of 
their  duty  to  induce  R.  Hoe  &  Co.  to  take  insurance  in  the  company 
the  defendants  then  represented.  But  the  question  is  whether  any 
consideration  was  due  from  them  for  the  contracts  they  had,  as 
agents  for  the  plaintiff,  made  while  they  held  that  relation  to  it. 
They  had,  pursuant  to  such  agency,  and  for  it,  insured  the  property 
of  Hoe  &  Co.;  and  that  was  done  under  a  contract  by  which  they 
were  entitled  to  and  did  receive  thirty  per  centum  of  the  premiums 
paid.  This  was  compensation  for  their  skill  and  services  as  agents 
of  the  plaintiff.     Although  their  fiduciary  relation  to  the   plaintiff 


534  INSURANCE   AGENTS. 

had  ti^rminated,  the  contract  of  insurance  they  in  that  character  had 
made  with  the  assured  remained  only  partially  executed,  —  the  time 
of  its  indemnity  had  not  expired,  —  and  as  a  consequence  the  pre- 
miums paid  were  not  fully  earned.  The  defendants  had,  pursuant 
to  their  contract  of  agency  with  the  plaintiff,  received  thirty  cents 
of  every  dollar  of  those  premiums.  They  received  this  from  the 
plaintiff  in  consideration  of  the  services  by  them  performed  in  its 
business  and  behalf  by  virtue  of  the  contract  between  them.  The 
policies  of  insurance  were  made  subject  to  the  right  reserved  to  the 
assured  of  surrendering  them,  and  having  a  rebate  and  reimburse- 
ment//-^ tanto  of  the  premiums  paid;  and  this  without  prejudice  to 
the  defendants,  since  they  had  duly  performed  the  services  of 
creating  the  relation  of  insurer  and  assured.  This  is  all  they 
undertook  to  do  for  their  stipulated  compensation. 

But,  when  they  had  accomplished  this,  were  they  at  liberty  to 
defeat  the  purpose  or  duration  of  the  contract  of  insurance,  and 
retain  the  fruits  of  it,  to  the  prejudice  of  the  plaintiff?  It  quite 
clearly  seems  that  they  could  not  do  so  without  failure  to  observe 
their  obligation  arising  out  of  the  contractual  relation  which  they 
had  assumed  with  the  plaintiff,  and  pursuant  to  which  they  made  for 
it  the  contract  of  insurance.  When  their  agency  for  the  plaintiff 
terminated,  the  unearned  portion  of  the  premiam  upon  the  Hoe  & 
Co.  policies  existed  in  the  contract  executory  in  character,  and  of 
which  the  defendants  had  received  thirty  per  centum  by  virtue  of 
their  contract  with  the  plaintiff.  There  is  no  well-supported  prin- 
ciple which  would  enable  them  to  take  from  the  plaintiff  the  benefit 
of  the  contract  of  insurance  it  had  through  them  made,  and  retain 
the  portion  of  the  consideration  received  by  them,  and  which  they 
had  caused  the  plaintiff  to  restore  to  the  assured.  The  question 
was  not  one  of  disability  arising  out  of  fiduciary  relation;  that 
had  ceased  to  exist  between  the  parties.  It  was  one  founded  in 
contract,  pursuant  to  which  the  defendants  had  received  compen- 
sation out  of  the  proceeds  of  the  transaction  measured  by  the  term 
of  indemnity;  and  by  causing  the  defeat  of  the  operation  of  the 
contract  of  insurance  they  had  created,  before  its  stipulated  period 
expired,  and  thus  requiring  the  plaintiff  to  rebate  a  portion  of  the 
premium,  they  caused  a  partial  failure  of  consideration  of  the  con- 
tract they  assumed  to  perform,  and,  to  the  extent  at  least  of  the 
amount  received  by  them  of  the  sum  which  the  plaintiff  was  thus 
required  to  refund,  they  became  liable  to  reimburse  it.  The  power 
of  an  agent  to  create  rights  by  contract  for  his  principal  includes  an 
implied  duty  to  observe,  and  not  to  defeat  or  destroy,  them.  The 
facts  in  the  present  case  did  not  necessarily  require  the  conclusion 


INSURANCE   AGENTS.  535 

of  bad  faith,  on  the  part  of  the  defendants,  although  it  may  have 
been  permitted;  nor  was  the  action  tried  by  the  court  upon  the 
theory  that  they  were  chargeable  with  that  imputation;  and  for  that 
reason,  if  for  no  other,  there  was  no  error  or  prejudice  in  the  exclu- 
sion of  certain  evidence  offered  by  the  defendants.  And  the  ques- 
tion was  finally  treated  by  the  parties  at  the  trial  as  one  of  law  only. 
In  that  view  the  measure  of  damages,  as  founded  upon  the  contract 
between  the  parties,  by  which  the  defendants'  agency  was  created 
and  pursuant  to  which  they  issued  the  policies,  was  that  which  the 
court  adopted  in  the  direction  of  the  verdict;  and  that  amount  the 
plaintiff  was  entitled  to  recover.  In  legal  contemplation  the  relief 
of  the  plaintiff  from  its  contract  of  insurance  was  of  some  value  to 
it  at  the  time  the  policies  were  canceled,  although  it  turned  out 
that  no  loss  would  have  been  suffered  if  they  had  continued  effectual 
until  the  end  of  the  term  for  which  they  were  issued. 

The  judgment  should  be   affirmed   without  costs  in   this  court  to 
either  party.     All  concur.  Judgment  affirmed.' 


'  "  In  an  action  against  an  insurance  company  to  recover  unearned  premiums 
by  the  assignee  of  claims  for  such  unearned  premiums  on  policies  issued  by  the 
defendant,  a  plea  alleging  that  the  policies  on  which  the  unearned  premiums 
are  claimed  were  procured  by  plaintiff  as  defendant's  agent,  for  the  procurement 
of  which  plaintiff  received  a  portion  of  the  premiums  paid  by  the  policy-holders, 
that  plaintiff,  after  ceasing  to  be  defendant's  agent,  induced  the  said  policy- 
holders to  cancel  the  policies  for  the  purpose  of  depriving  the  defendant  of  the 
benefits  thereof,  and  then  bought  the  unearned  premiums  in  violation  of 
defendant's  rights,  avers  no  facts  which  constitute  a  defense  to  the  action,  or 
precludes  a  recovery  by  the  plaintiff,  and  a  demurrer  thereto  is  properly  sus- 
tained; the  policy-holders  having  the  absolute  right  to  cancel  their  policies,  and 
to  be  immediately  refunded  their  unearned  premiums,  had,  therefore,  the  right 
to  assign  their  claims  to  such  premiums,  which  gave  the  assignee  the  legal 
right  to  sue  thereon."  —  Scottis/i  Union,  etc.,  Ins.  Co.  v.  Dangaix,  103  Ala.  388 
(Syllabus). 


PART  IX. 
Subrogation. 


a.  Fire  Insurance. 

I.   In  General. 
CASTELLAIN  r.   PRESTON  and  Others.' 

II  Q.  B.  D.  380.  —  1883. 

Appeal  to  the  plaintiff  from  the  judgment  of  Chitty,  J.,  in  favor 
of  the  defendants.  The  facts  are  fully  stated  in  the  report  of  the 
proceedings  before  Chitty,  J.,  8  Q.  B.  D.  613,  and  it  is  necessary 
here  only  to  briefly  recapitulate  them. 

The  plaintiff  sued  on  behalf  of  the  London.  Liverpool  ami  Globe 
Insurance  Company  to  recover  a  sum  of  £330,  wi'h  interest  since 
the  25th  of  September,  1878.  On  the  25th  of  March,  1878,  the 
defendants,  as  owners  of  certain  lands  and  buildings  in  Liverpool, 
effected  an  insurance  on  the  buildings  against  loss  by  fire,  and  they 
kept  the  policy  on  foot  by  payment  of  the  premiums  until  after  the 
fire  hereinafter  mentioned  occurred.  The  policy  was  in  the  usual 
form,  giving  the  insurers  the  option  of  reinstating  the  property. 
On  the  31st  of  July,  1878.  the  defendants  contracted  to  sell  the  land 
and  the  buildings  to  their  tenants,  Messrs.  Rayner,  for  the  sum  of 
£3100,  and  they  received  a  deposit.  The  contract  provided  that  the 
time  of  the  completion  should  be  such  day  within  two  years  from 
the  date  as  the  vendors  should  name.  On  the  15th  of  August  in  the 
same  year  a  fire  occurred  damaging  part  of  the  buildings.  A  claim 
was  made  on  behalf  of  the  defendants,  and  after  negotiation  as  to 
the  sum  to  be  paid,  the  amount  of  the  claim  was  ultimately  fixed  at 
£330,  and  that  sum  was  in  fact  paid  on  the  25th  of  September,  1878, 
by  the  insurers,  who  were  at  the  time  ignorant  of  the  existence  of 
the  contract  for  sale.     On  the  25th  of  March,  1879,  the  defendants 

'  This  case  arose  out  of  the  determination  of  Rayner  v.  Preston,  18  Ch.  D.  I 
reported  herein  at  p.  344. 

[536] 


SUBROGATION.  53/ 

named  the  5th  of  May  as  the  day  of  completion,  and  on  the  follow- 
ing 1 2th  of  December  the  conveyance  was  executed  and  the  balance 
of  the  purchase  money  paid. 

Brett,  L.  J.  —  In  this  case  the  action  is  brought  by  the  plaintiff, 
as  representing  an  insurance  company,  against  the  defendants,  in 
respect  of  money  which  has  been  paid  by  that  company  to  the 
defendants  on  account  of  the  loss  by  fire  of  a  building.  The  defend- 
ants were  the  owners  of  property  consisting  partly,  at  all  events,  of 
a  house,  and  the  defendants  had  made  a  contract  of  sale  of  that 
property  with  third  persons,  which  contract,  upon  the  giving  of  a 
certain  notice  as  to  the  time  of  payment,  would  oblige  those  third 
persons,  if  they  fulfilled  the  contract,  to  pay  the  agreed  price  for 
the  sale  of  that  property,  a  part  of  which  was  a  house,  and,  accord- 
ing to  the  peculiarity  of  such  a  sale  and  purchase  of  land  or  real 
property,  the  vendees  would  have  to  pay  the  purchase  money, 
whether  the  house  was,  before  the  date  of  payment,  burnt  down  or 
not  After  the  contract  was  made  with  the  third  persons,  and 
before  the  day  of  payment,  the  house  was  burnt  down.  The  ven- 
dors, the  defendants,  having  insured  the  house  in  the  ordinary  form 
with  the  plaintiff's  company,  it  is  not  suggested  that  upon  the  house 
being  burnt  down  the  defendants  had  not  an  insurable  interest. 
They  had  an  insurable  interest,  as  it  seems  to  me,  first,  because 
they  were  at  all  events  the  legal  owners  of  the  property;  and,  sec- 
ondly, because  the  vendees  or  third  persons  might  not  carry  out  the 
contract,  and  if  for  any  reason  they  should  never  carr}'  out  the  con- 
tract, then  the  vendors,  if  the  house  was  burnt  down,  would  suffer 
the  loss.  Upon  the  happening  of  the  fire,  the  defendants  made  a 
claim  on  the  insurance  company  represented  by  the  plaintiff,  and 
were  paid  a  certain  sum  which  represented  the  damage  done  to  the 
house.  After  that,  the  contract  of  sale  between  the  defendants 
and  the  third  persons,  the  vendees  of  the  property,  was  carried  out, 
and  the  full  amount  of  the  purchase  money  was  paid  by  the  third 
persons  to  the  defendants  notwithstanding  the  fire.  Under  those 
circumstances  the  plaintiff  representing  the  insurance  company 
brings  this  action;  I  do  not  say  that  he  brings  it  to  recover  back 
the  money  which  has  been  paid  by  the  insurance  company  (for  that 
expression  of  opinion  would  rather  interfere  with  the  form  of  the 
action),  but  he  brings  the  action  in  respect  of  that  money. 

The  question  is  whether  this  action  is  maintainable.  The  case 
was  tried  before  Chitty,  J.,  and  he,  in  a  very  careful  and  elaborate 
judgment  (8  Q.  B.  Div.  613,  at  page  615),  has  come  to  the  conclu- 
sion that  the  insurance  company  cannot  recover  against  the  defend- 
ants in  respect  of  the  money  paid  by  them.     It   seems  to  me  that 


538  SUBROGATION. 

the  foundation  of  his  judgment  is  this,  that  he  considers  that  the 
doctrine  of  subrogation  of  the  insurer  into  the  position  of  the 
assured  is  confined  within  limits,  which  prevent  it  from  extending 
to  the  present  case.  I  must  now  consider  whether  I  can  agree  with 
him. 

In  order  to  give  my  opinion  upon  this  case,  I  feel  obhged  to  revert 
tJ  the  very  foundation  of  every  rule  which  has  been  promulgated 
and  acted  on  by  the  courts  with  regard  to  insurance  law.  The  very 
foundation,  in  my  opinion,  of  every  rule  which  has  been  applied  to 
insurance  law,  is  this,  namely,  that  the  contract  of  insurance  con- 
tained in  a  marine  or  fire  policy  is  a  contract  of  indemnity,  and  of 
indemnity  only,  and  that  this  contract  means  that  the  assured,  in 
case  of  a  loss  against  which  the  policy  has  been  made,  shall  be  fully 
indemnified,  but  shall  never  be  more  than  fully  indemnified.  That 
is  the  fundamental  principle  of  insurance,  and  if  ever  a  proposition 
is  brought  forward  which  is  at  variance  with  it,  that  is  to  say,  which 
either  will  prevent  the  assured  from  obtaining  a  full  indemnity,  or 
which  will  give  to  the  assured  more  than  a  full  indemnity,  that 
proposition  must  certainly  be  wrong. 

In  the  course  of  this  discussion  many  propositions  and  rules  well 
known  in  insurance  law  have  been  glanced  at.  For  instance,  to 
speak  of  marine  insurance,  the  doctrine  of  a  constructive  total  loss 
originated  solely  to  carry  out  the  fundamental  rule  which  I  have 
mentioned.  It  was  a  doctrine  introduced  for  the  benefit  of  the 
assured;  for,  as  a  matter  of  business,  a  constructive  total  loss  is 
equivalent  to  an  actual  total  loss;  and  if  a  constructive  total  loss  could 
not  be  treated  as  an  actual  total  loss,  the  assured  would  not  recover 
a  full  indemnity.  But  grafted  upon  the  doctrine  of  constructive 
total  loss  came  the  doctrine  of  abandonment,  which  is  a  doctrine  in 
favor  of  the  insurer  or  underwriter,  in  order  that  the  assured  may 
not  recover  more  than  a  full  indemnity.  The  doctrine  of  construc- 
tive total  loss  and  the  doctrine  of  notice  of  abandonment  engrafted 
upon  it  were  invented  or  promulgated  for  the  purpose  of  making  a 
policy  of  marine  insurance  a  contract  of  indemnity  in  the  fullest 
sense  of  the  term.  I  may  point  out  that  the  doctrine  of  notice  of 
abandonment  is  most  difficult  to  justify  upon  principle ;  it  was  intro- 
duced, rather  as  a  matter  of  justice  in  favor  of  the  underwriters, 
so  as  to  prevent  the  assured  from  obtaining  by  fraud  more  than  a 
full  indemnity.  That  doctrine  is  to  a  certain  extent  technical,  that 
is  to  say,  although  the  assured  has  in  reality  suffered  a  constructive 
total  loss,  and  although  he  is  upon  general  principles  entitled  to 
recover,  nevertheless  he  must  fail  unless  he  has  given  a  notice  of 
abandonment.    I  suppose  that  the  doctrine  of  notice  of  abandonment 


SUBROGATION.  539 

was  originally  introduced  by  merchants  and  underwriters,  and  after- 
wards adopted  as  part  of  the  law  as  to  marine  insurance;  but  at  first 
sight  it  seems  a  mere  encroachment  of  the  judges. 

I  have  mentioned  the  doctrine  of  notice  of  abandonment  for  the 
purpose  of  coming  to  the  doctrine  of  subrogation.  That  doctrine 
does  not  arise  upon  any  of  the  terms  of  the  contract  of  insurance; 
it  is  only  another  proposition  which  has  been  adopted  for  the  pur- 
pose of  carrying  out  the  fundamental  rule  which  I  have  mentioned, 
and  it  is  a  doctrine  in  favor  of  the  underwriters  or  insurers  in 
order  to  prevent  the  assured  from  recovering  more  than  a  full 
indemnity;  it  has  been  adopted  solely  for  that  reason.  It  is  not, 
to  my  mind,  a  doctrine  applied  to  insurance  law  on  the  ground  that 
underwriters  are  sureties.  Uoderwriters  are  not  cdways  sureties. 
They  have  rights  which  sometimes  are  similar  to  the  rights  of  sure- 
ties, but  that  again  is  in  order  to  prevent  the  assured  from  recover- 
ing from  them  more  than  a  full  indemnity.  Bat  it  being  admitted 
that  the  doctrine  of  subrogation  is  to  be  applied  merely  for  the  pur- 
pose of  preventing  the  assured  from  obtaining  more  than  a  full 
indemnity,  the  question  is,  whether  that  doctrine,  as  applied  in 
insurance  law,  can  be  in  any  way  limited.  Is  it  to  be  limited  to 
this,  that  the  underwriter  is  subrogated  into  the  place  of  the  assured 
so  far  as  to  enable  the  underwriter  .to  enforce  a  contract,  or  to 
enforce  a  right  of  action?  ^Vhy  is  it  to  be  limited  to  that,  if  when 
it  IS  limited  to  that,  it  will,  in  certain  cases,  enable  the  assured  to 
recover  more  than  a  full  indemnity?  The  moment  it  can  be  shown 
that  such  a  limitation  of  the  doctrine  would  have  that  effect,  then, 
as  I  said  before,  in  my  opinion,  it  is  contrary  to  the  foundation  of 
the  law  as  to  insurance,  and  must  be  wrong.  And,  with  the  greatest 
deference  to  my  Brother  Chitty,  it  seems  to  me  that  that  is  the 
fault  of  his  judgment.  He  has  by  his  judgment  limited  this  doc- 
trine of  subrogation  to  placing  the  insurer  in  the  position  of  the 
assured  only  for  the  purpose  of  enforcing  a  right  of  action,  to  which 
the  assured  may  be  entitled.  In  order  to  apply  the  doctrine  of 
subrogation,  it  seems  to  me  that  the  full  and  absolute  meaning  of 
the  word  must  be  used,  that  is  to  say,  the  insurer  must  be  placed 
in  the  position  of  the  assured.  Now  it  seems  to  me  that  in  order  to 
carry  out  the  fundam.ental  rule  of  insurance  law,  this  doctrine  of 
subrogation  must  be  carried  to  the  extent  which  I  am  now  about 
to  endeavor  to  express,  namely,  that  as  between  the  underwriter  and 
the  assured  the  underwriter  is  entitled  to  the  advantage  of  every 
right  of  the  assured,  whether  such  right  consists  in  contract,  ful- 
filled or  unfulfilled,  or  in  remedy  for  tort  capable  of  being  insisted 
on  or  already  insisted  on,  or  in  any  other  right,  whether  by  way  of 


540  SUBROGATION. 

condition  or  otherwise,  legal  or  equitable,  which  can  be,  or  has  been 
exercised  or  has  accrued,  and  whether  such  right  could  or  could  not 
be  enforced  by  the  insurer  in  the  name  of  the  assured,  by  the  exer- 
cise or  acquiring  of  which  right  or  condition  the  loss  against  which 
the  assured  is  insured,  can  be,  or  has  been  diminished.  That  seems 
to  me  to  put  this  doctrine  of  subrogation  in  the  largest  possible 
form,  and  if  in  that  form,  large  as  it  is,  it  is  short  of  fulfilling  that 
which  is  the  fundamental  condition,  I  must  have  omitted  to  state 
something  which  ought  to  have  been  stated.  But  it  will  be  observed 
that  I  use  the  words  "  of  every  right  of  the  assured."  I  think  that 
the  rule  does  require  that  limit.  In  Burnand  v.  Rodocanachi^  7 
App.  Cas.  2,7,2^,  the  foundation  of  the  judgment  to  my  mind  was, 
that  what  vvas  paid  by  the  United  States  government  could  not  be 
considered  as  salvage,  but  must  be  deemed  to  have  been  only  a  gift. 
It  was  only  a  gift  to  which  the  assured  had  no  right  at  any  time 
until  It  was  place  1  in  their  hands.  I  am  aware  that  with  regard  to 
the  case  of  reprisals,  or  that  which  a  person  whose  vessel  had  been 
captured  got  from  the  English  government  by  a  way  of  reprisal,  the 
sum  received  has  been  stated  to  be,  and  perhaps  in  one  sense  was, 
a  gift  of  his  own  government  to  himself,  but  it  was  always  deemed 
to  be  capable  of  being  brought  vvithin  the  range  of  the  law  as  to 
insurance,  because  the  English  government  invariably  made  the 
"  gift,"  so  invariably,  that  as  a  matter  of  business  it  has  come  to 
be  considered  as  a  matter  of  right.  This  enlargement,  or  this 
explanation,  of  what  I  consider  to  be  the  real  meaning  of  the  doc- 
trine of  subrogation,  shows  that  in  my  opinion  it  goes  much  further 
than  a  mere  transfer  of  those  rights  which  may  at  any  time  give  a 
cause  of  action  either  in  contract  or  in  tort,  because  if  upon  the 
happening  of  the  loss  there  is  contract  between  the  assured  and  a 
third  person,  and  if  that  contract  is  immediately  fulfilled  by  the 
third  person,  then  there  is  no  right  of  action  of  any  kind  into  which 
the  insurer  can  be  subrogated.  The  right  of  action  is  gone;  the 
contract  is  fulfilled.  In  like  manner  if  upon  the  happening  of  a 
tort  the  tort  is  immediately  made  good  by  the  tort  feasor,  then  the 
right  of  action  is  gone ;  there  is  no  right  of  action  existing  into  which 
the  insurer  can  be  subrogated.  It  will  be  said  that  there  did  for  a 
moment  exist  a  right  of  action  in  favor  of  the  assured,  into  which 
the  insurer  could  have  been  subrogated.  But  he  cannot  be  subro- 
gated into  a  right  of  action  until  he  has  paid  the  sum  insured  and 
made  good  the  loss.  Therefore  innumerable  cases  would  be  taken 
out  of  the  doctrine,  if  it  were  to  be  confined  to  existing  rights  of 
action.  And  I  go  further  and  hoi  1  that  if  a  right  of  action  in  the 
assured  has  been  satisfied,  and  the  loss  has  been  thereby  diminished, 


SUBROGATION.  541 

then,  although  there  never  was  nor  could  be  any  right  of  action  ini) 
which  the  insurer  could  be  subrogated,  it  would  be  contrary  to  tlie 
doctrine  of  subrogation  to  say  that  the  loss  is  not  to  be  diminished 
as  between  the  assured  and  the  insurer  by  reason  of  the  satisfaction 
of  that  right.  I  fail  to  see  at  present  if  the  present  defendants  would 
have  had  a  right  of  action  at  any  time  against  the  purchasers,  upon 
which  they  could  enforce  a  contract  of  sale  of  their  property  whether 
the  building  was  standing  or  not,  why  the  insurance  company 
should  not  have  been  subrogated  into  that  right  of  action.  But  I 
am  not  prepared  to  say  that  they  could  be,  more  particularly  as  I 
understand  my  learned  brother,  who  knows  much  more  of  the  law 
as  to  specific  performance  than  I  do,  is  at  all  events  not  satisfied 
that  they  could.  I  pass  by  the  question  vvithont  soU-ing  it,  because 
there  was  a  right  in  ihe  defendants  t)  have  the  contract  of  sale  ful- 
filled by  the  purchasers  notwithstanding  the  loss,  and  it  was  fulfilled. 
The  assured  have  had  the  advantage  therefore  of  that  right,  and  by 
that  right,  not  by  a  gift  which  the  purchasers  could  have  declined 
to  make,  the  assured  have  recovered,  notwithstanding  the  loss,  from 
the  purchasers,  the  very  sum  of  money  which  they  were  to  obtain 
whether  this  building  was  burnt  or  not.  In  that  sense  I  cannot 
conceive  that  a  right,  by  virtue  of  which  the  assured  has  his  loss 
diminished,  is  not  a  right  which,  as  has  been  said,  affects  the  loss. 
This  right  which  was  at  one  time  merely  in  coaLract,  but  which  was 
afterwards  fulfilled,  either  when  it  was  in  contract  only,  or  after  it 
was  fulfilled,  does  not  affect  the  loss;  that  is  to  say,  it  affects  the 
loss  by  enabling  the  assured,  the  vendors,  to  get  the  same  money 
which  they  would  have  got  if  the  loss  had  not  happened. 

While  I  am  applying  the  doctrine  of  subrogation  which  I  have 
endeavored  to  enunciate,  I  think  it  due  to  Chitty,  J.,  to  point  out 
what  passages  in  his  judgment  require  some  modification.  8  Q.  B. 
Div.,  at  page  617.  I  find  him  reading  this  passage:  "  I  know  of 
no  foundation  for  the  right  of  underwriters,  except  the  well  known 
principle  of  law,  that  where  one  person  has  agreed  to  indemnify 
another,  he  will,  on  making  good  the  indemnity,  be  entitled  to  suc- 
ceed to  all  the  ways  and  means  by  which  the  person  indemnified 
might  have  protected  himself  against  or  reimbursed  himself  for  the 
loss."  That  is  a  quotation  from  Lord  Cairns  in  Simpson  v.  Thom- 
son, 3  App.  Cas.  279,  at  page  284.  The  learned  judge  then  goes 
on,  "  What  is  the  principle  of  subrogation?  On  payment  the  insur- 
ers are  entitled  to  enforce  all  the  remedies,  whether  in  contract  or 
in  tort,  which  the  insured  has  against  third  parties,  whereby  the 
insured  can  compel  such  third  parties  to  make  good  the  loss  insured 
against."     That  is,  as  it  seems  to   me,  to  confine   this  doctrine  of 


542  SUBROGATION. 

subrogation  to  the  principle  that  the  insurers  are  entitled  to  enforce 
all  remedies,  whether  in  contract  or  in  tort.  I  should  venture  to 
add  this  —  "And  if  the  assured  enforces  or  receives  the  advantage 
of  such  remedies,  the  insurers  are  entitled  to  receive  from  the 
assured  the  advantage  of  such  remedies."  Then  when  we  come  to 
this  illustration,  "  Where  the  landlord  insures,  and  he  has  a  cove- 
nant by  the  tenant  to  repair,  the  insurance  office,  on  payment  in 
like  manner,  succeeds  to  the  right  of  the  landlord  against  his  ten- 
ant." I  would  add  this  —  "And  if  the  tenant  does  repair,  the 
insurer  has  the  right  to  receive  from  the  assured  a  benefit  equiva- 
lent to  the  benefit  which  the  assured  has  received  from  such 
repair."  Then,  dealing  with  the  case  of  Burnand  v.Rodocamichi^  7 
App.  Cas.  ^tlly  the  learned  judge  cites  the  opinion  of  Bramwell,  L. 
J.,  8  Q.  B.  Div.  at  page  618.  He  says  that  Bramwell,  L.  J.,  in  his 
judgment  held  that  it  was  not  salvage,  but  "  that  in  the  circum- 
stances the  sum  received  by  the  shipowner  was  but  a  pure  gift,  and 
there  was  no  right  on  the  part  of  the  insurers  to  recover  any  part 
of  it  over  against  him."  I,  for  myself,  venture  to  add  this  as  the 
reason,  "  Because  there  was  no  right  in  the  assured  to  demand  the 
compensation  from  the  American  government."  There  was  no 
right  to  demand  it,  it  was  bestowed  and  received  as  a  pure  gift. 
Darrell  v.  Tib/nits,  5  Q.  B.  Div.  560,  seems  to  me  to  be  entirely  in 
favor  of  the  plaintiff  in  this  case.  I  shall  not  retract  from  the 
very  terms  which  I  used  in  that  case.  It  seems  to  me  that  in  Dar- 
rell V.  Tibbitts,  5  Q.  B.  Div.  560,  the  insurers  were  not  subrogated 
to  a  right  of  action  or  to  a  remedy.  They  were  not  subrogated  to 
a  right  to  enforce  the  remedy,  but  what  they  were  subrogated  into 
was  the  right  to  receive  the  advantage  of  the  remedy  which  had 
been  applied,  whether  it  had  been  enforced  or  voluntarily  adminis- 
tered by  the  person  who  was  bound  to  administer  it.  That  seems 
to  me  to  be  the  doctrine.  Then  with  regard  to  the  passage  (5  Q. 
B.  Div.  at  page  563),  "  the  doctrine  is  well  established,  that  where 
something  is  insured  against  loss,  either  in  a  marine  or  a  fire  policy, 
after  the  assured  has  been  paid  by  the  insurers  for  the  loss,  the 
insurers  are  put  into  the  place  of  the  assured  with  regard  to  every 
right  given  to  him  by  the  law  respecting  the  subject-matter 
insured."  I  wish  to  explain  that  that  was  a  distinct  clause,  and  it 
was  so  intended  by  me  when  I  stated  it.  I  then  mentioned  con- 
tracts: "And  with  regard  to  every  contract  which  touches  the  sub- 
ject-matter insured,  and  which  contract  is  affected  by  the  loss  or 
the  safety  of  the  subject-matter  insured  by  reason  of  the  peril 
insured  against."  I  fail  to  conceive  any  contract  which  gives  a 
right  over  the  thing  insured,  which  is  not  affected  by  the  loss  or 


SUBROGATION.  543 

safety  of  it;  and  if  it  is  necessary  to  bring  the  present  case  within 
those  terms,  it  seems  to  me  that  the  contract  of  purchase  and  sale 
was  affected  by  that  loss.  I  will  not  go  further  with  the  judgment 
of  Chitty,  J.,  except  to  say  this,  that  at  the  end  my  learned  brother 
has  put  it  thus,  that  "  the  only  principle  applicable  is  that  of  sub- 
rogation as  understood  in  the  full  sense  of  that  term."  8  Q.  B. 
Div.  at  page  625.  There  I  agree  with  him,  only  my  view  of  the 
full  sense  is  larger  than  that  which  he  adopted.  "And  that  where 
the  right  claimed  is  under  a  contract  between  the  insured  and  third 
parties,  it  must  be  confined  to  the  case  of  a  contract  relating  to  the 
subject  matter  of  the  insurance,  which  entitled  the  insurers  to  have 
the  damages  made  good."  I  think  it  would  be  better  expressed  in 
this  way  —  "which  entitles  the  assured  to  be  put  by  such  third 
parties  into  as  good  a  position  as  if  the  damage  insured  against  had 
not  happened."  If  it  is  put  in  that  sense,  it  seems  to  me  to  be 
consistent  with  the  proposition  which  I  laid  down  at  the  beginning 
of  what  I  have  said,  and  to  cover  this  case.  I  will  repeat  it, 
"  which  entitles  the  assured  to  be  put  by  such  third  parties  into 
as  good  a  position  as  if  the  damage  insured  against  had  not  hap- 
pened." The  contract  in  the  present  case,  as  it  seems  to  me,  does 
enable  the  assured  to  be  put  by  the  third  party  into  as  good  a  posi- 
tion as  if  the  fire  had  not  happened,  and  that  result  arises  from  this 
contract  alone.  Therefore,  according  to  the  true  principles  of 
insurance  law,  and  in  order  to  carry  out  the  fundamental  doctrine, 
namely,  that  the  assured  can  recover  a  full  indemnity,  but  shall 
never  recover  more,  except,  perhaps,  in  the  case  of  the  suing  and 
laboring  clause  under  certain  circumstances,  it  is  necessary  that 
the  plaintiff  in  this  case  should  succeed.  The  case  of  Darrell  v. 
Tibbitts,  5  Q.  B.  Div.  560,  has  cut  away  every  technicality  which 
would  prevent  a  sound  decision.  The  doctrine  of  subrogation  must 
be  carried  out  to  the  full  extent,  and  carried  out  in  this  case  by 
enabling  the  plaintiff  to  recover. 

Cotton,  L.  J.  —  In  this  case  the  appellant's  company  insured  a 
house  belonging  to  the  defendants,  and  before  there  was  any  loss 
by  fire  the  defendants  sold  the  house  to  certain  purchasers.  After- 
wards there  was  a  fire,  and  an  agreed  sum  was  paid  by  the  insur- 
ance office  to  the  defendants  in  respect  of  the  loss.  The  appellant 
apparently  seeks  to  recover  the  sum  which  the  office  paid  to  the 
defendants,  and  if  the  plaintiff's  claim  could  be  shaped  only  in  this 
form,  I  think  my  opinion  would  be  against  him.  The  plaintiff's 
claim  may  be  treated  in  substance  in  another  way,  namely,  the  com- 
pany seek  to  obtain  the  benefit  either  wholly  or  partly  of  the  amount 
paid  by  them  out  of  the  purchase-money  which  the  defendants  have 


544  SUHROCJATION. 

rec;?ived  since  ihe  fire  from  the  purchasers.  In  my  opinion,  the 
plaintiff  is  right  in  that  contention.  I  think  that  the  question  turns 
on  the  consideration  of  what  a  policy  of  insurance  against  fire  is, 
and  on  that  the  right  of  the  plaintiff  depends.  The  policy  is  really 
a  contract  to  indemnify  the  person  insured  for  the  loss  which  he  has 
sustained  in  co;is>;qaence  of  the  peril  insured  against,  which  has 
happened,  and  from  that  it  follows,  of  course,  that  as  it  is  only  a 
contract  of  indemnity,  it  is  only  to  pay  that  loss  which  the  assured 
may  have  sustained  by  reason  of  the  fire  which  has  occurred.  In 
order  to  ascertain  what  that  loss  is,  everything  must  be  taken  inio 
account  which  is  received  by  and  comes  to  the  hand  of  the  assured, 
and  which  diminishes  that  loss.  It  is  only  the  amount  of  the  loss, 
when  it  is  considered  as  a  contract  of  indemnity,  which  is  to  be  paid 
after  taking  into  account  and  estimating  tliose  benefits  or  sums  of 
money  which  the  assured  may  have  received  in  diminution  of  the 
loss.  If  the  proposition  is  stated  in  that  manner,  it  is  clear  that 
the  office  would  be  entitled  to  the  benefit  of  anything  received  by 
the  assured  before  the  time  when  the  policy  is  paid,  and  it  is  estab- 
lished by  the  case  of  Danell  v.  Tiblnils,  5  Q.  B.  Div.  560,  that  the 
insurance  company  is  entitled  to  that  benefit,  whether  or  not  before 
they  pay  the  money  they  insist  upon  a  calculation  being  made  of 
what  can  be  recovered  in  diminution  of  the  loss  by  the  assured;  if 
they  do  not  insist  upon  that  calculation  being  made,  and  if  it  after- 
wards turns  out  that  in  consequence  of  something  which  ought  to 
have  been  taken  into  account  in  estimating  the  loss,  a  sum  of 
money,  or  even  a  benefit,  not  being  a  sum  of  money,  is  received,  then 
the  office,  notwithstanding  the  payment  made,  is  entitled  to  say  that 
the  assured  is  to  hold  that  for  its  benefit,  and  although  it  was  not 
taken  into  account  in  ascertaining  the  sum  which  was  paid,  yet  when 
it  has  been  received  it  must  be  brought  into  account,  and  if  it  is  not  a 
sum  of  money,  but  a  benefit  that  has  been  received,  its  value  must 
be  estimated  in  money. 

Now  Lord  Blackburn,  in  the  case  of  Buriiand  v.  Rodocanachi^  7 
App.  Cas.  333,  at  page  339,  states  the  principle  in  these  words: 
"  The  general  rule  of  law  (and  it  is  obvious  justice)  is  that  where 
there  is  a  contract  of  indemnity  (it  matters  not  whether  it  is  a 
marine  policy,  or  a  policy  against  fire  on  land,  or  any  other  con- 
tract of  indemnity),  and  a  loss  happens,  anything  which  reduces  or 
diminishes  that  loss  reduces  or  diminishes  the  amount  which  the 
indemnifier  is  bound  to  pay;  and  if  the  indemnifier  has  already  paid 
it,  then,  if  anything  which  diminishes  the  loss  comes  into  the  hands 
of  the  person  to  whom  he  has  paid  it,  it  becomes  an  equity  that  the 
person  who  has  already  paid  the   full   indemnity  is  entitled   to   be 


SUBROGATION. 


545 


recouped  by  having  that  amount  back."  In  Darrell  v.  Tibbitts,  5 
Q.  B.  Div.  560,  to  which  I  have  already  referred,  the  question  which 
we  had  to  consider  was  whether  the  insurance  office  was  entitled  to 
the  benefit  produced  in  consequence  of  a  covenant  to  repair  if  the 
building  should  be  damaged  by  an  explosion  of  gas.  In  my  opinion 
it  was  not  intended  in  any  way  to  limit  the  right  of  the  insurer,  as 
an  insurer,  to  cases  where  the  contract  in  respect  of  which  benefit 
has  been  received  related  to  the  same  loss  or  damage  as  that 
against  which  the  contract  of  indemnity  was  created  by  the  policy. 
That  was  what  was  before  this  court  in  that  case,  and  undoubtedly 
expressions  do  occur  as  to  a  contract  relating  to  the  loss  or  affect- 
ing the  loss,  but  the  principle  was  not  limited  to  contracts.  The 
principle  which  I  have  enunciated  goes  further,  and  if  there  is  a 
money  or  any  other  benefit  received  which  ought  to  be  taken  into 
account  in  diminishing  the  loss,  or  in  ascertaining  what  the  real  loss 
is  against  which  the  contract  of  indemnity  is  given,  the  indemnifier 
ought  to  be  allowed  to  take  advantage  of  it  in  order  to  calculate 
what  the  real  loss  is,  even  although  the  benefit  is  not  a  contract  or 
right  of  suit  which  arises  and  has  its  birth  from  the  accident 
insured  against.  Of  course  the  difficulty  is  to  consider  what  ought 
to  be  taken  into  account  in  estimating  that  loss  against  which  the 
insurer  has  agreed  to  indemnify,  and  we  have  been  pressed  in  argu- 
ment with  many  difficulties.  One  which  possibly  was  put  to  us  most 
strongly,  was  that  the  contract  of  sale  has  nothing  to  do  with 
destruction  by  fire,  and  if  any  part  of  the  purchase-money  is  to  be 
taken  into  account,  why  is  a  gift  not  to  be  taken  into  account? 
That  may  be  said  to  diminish  the  loss  as  well  as  a  contract  ot  sale. 
The  answer  is  that  when  a  gift  is  made  afterwards  in  order  to  dimin- 
ish the  loss,  it  is  bestowed  in  such  terms  as  to  show  an  intention  to 
benefit  the  assured,  and  to  give  the  insurer  the  benefit  of  that  would 
be  to  divert  the  gift  from  its  intended  object  to  a  different  person. 
That  really  was  what  was  decided  in  Burnand  v.  Rodocanachi^  7  App. 
Cas.  333.  There  the  money  bestowed,  not  as  a  matter  of  right  but 
as  a  gift,  was  intended  to  benefit  the  assured  beyond  the  amount 
which  they  had  got  in  consequence  of  any  insurance.  There  is 
another  ground  which  may  possibly  exclude  gifts.  It  may  be  that 
the  right  of  the  insurer  to  have  a  sum  brought  into  account  in 
diminution  of  the  loss,  against  which  he  has  given  a  contract  of 
indemnity,  is  confined  to  that  which  is  a  right  or  other  incident 
belonging  to  the  person  insured,  as  an  incident  of  the  property  at 
the  time  when  the  loss  takes  place.  This  definition  would  not 
include  a  sum  subsequently  bestowed  on  the  assured  by  way  of  gift, 
for  it  can   in   no  way  be   said   to  have  been  appertaining  to  him  as 

LAW  OF  INSURANCE  —  35 


54^  SUBROGATION. 

owner  of  the  property  at  the  time  when  the  loss  took  place.  But, 
:n  the  present  case,  what  we  have  to  consider  is  whether  the  con- 
iract  of  sale  is  not  an  incident  of  the  property  belonging  lo  the 
owners  at  the  time  of  the  loss  in  such  a  way,  that  it  ought  to  be 
brought  into  account  in  estimating  the  loss,  against  which  the 
insurer  has  undertaken  to  indemnify.  \Vhat  was  the  position  of  the 
parties?  The  defendants'  house  was  insured,  and  there  was  a  loss 
from  fire,  the  damage  caused  by  the  fire  being  estimated  by  the  par- 
ties at  ^330.  Ultimately,  the  property  having  been  already  agreed 
to  be  sold  at  a  fixed  price,  the  assured  received  the  whole  amount 
of  that  price.  Now  they  did  that  in  respect  of  a  contract  relating 
to  the  subject  insured,  the  house,  and,  to  my  mind,  if  they  received 
the  whole  amount  of  the  price  which  they  previously  had  fixed  as 
the  value  of  the  house,  that  must  of  necessity  be  brought  into 
account  when  it  was  received,  for  the  purpose  of  ascertaining  what 
was  the  ultimate  loss  against  which  they  had  concluded  a  contract 
of  indemnity  with  the  insurance  ofifice.  Here  the  purchasers  have 
paid  the  money  in  full,  and  as  the  property  was  valued  between  the 
vendors  and  the  purchasers  at  ;,{^3ioo,  the  vendors  got  that  sum  in 
respect  of  that  which  had  been  burned,  but  which  had  not  been 
burned  at  the  time  when  the  contract  was  entered  into.  They  had 
fixed  that  to  be  the  value,  and  then  any  money  which  they  get  from 
the  purchasers,  and  which  together  with  ^330,  the  sum  paid  by  the 
ofifice,  exceeds  the  value  of  the  property  as  fixed  by  them  under  the 
contract  to  sell,  must  diminish,  and  in  fact  entirely  extinguishes  the 
loss  occasioned  to  the  vendors  of  the  property  by  the  fire.  Therefore, 
though  it  cannot,  to  my  mind,  be  said  that  the  insurers  are  entitled, 
because  the  purchase  is  completed,  to  get  back  the  money  which 
they  have  paid,  yet  they  are  entitled  to  take  into  account  the  money 
subsequently  received  under  a  contract  for  the  sale  of  the  property 
existing  at  the  time  of  the  loss,  in  order  to  see  what  the  ultimate 
loss  was  against  which  they  gave  their  contract  of  indemnity.  On 
the  principle  of  Darrell  v.  Tibbitts,  5  Q.  B.  Div.  560,  when  the 
benefit  afterwards  accrued  by  the  completion  of  the  purchase,  the 
insurance  company  were  entitled  to  demand  that  the  money  paid 
by  them  should  be  brought  into  account.  Therefore  the  conclusion 
at  which  I  have  arrived  is,  that  if  the  purchase-money  has  been  paid 
in  full,  the  insurance  office  will  get  back  that  which  they  have  paid, 
on  the  ground  that  the  subsequent  payment  of  the  price  which  had 
been  before  agreed  upon,  and  the  contract  for  payment  of  which 
was  existing  at  the  time,  must  be  brought  into  account  by  the 
assured,  because  it  diminishes  the  loss  against  which  the  insurance 
office  merely  undertook  to  indemnify  them.     In  my  opinion,  there- 


SUBROGATION.  547 

fore,  the  decision  below  was  erroneous.  1  think  Chitty,  J,  based  it 
upon  this,  that  in  this  case  there  was  no  right  of  subrogation,  no 
contract  which  the  ofifice  could  have  insisted  upon  enforcing  for 
their  benefit.  I  think  it  immaterial  to  decide  that  question,  because 
the  vendors  have  exercised  their  right  to  insist  upon  the  completion 
of  the  purchase. 

BowEN,  L.J.  —  1  am  of  the  same  opinion.  \^Thcn  foHoivs  a  con- 
sideration of  the  nature  of  fire  insurance  as  a  contract  of  indemnity.^ 

Chitty,  J.,  goes  on  to  discuss  the  case  on  the  basis  of  what  he 
calls  the  principle  of  subrogation.  I  will  add  very  little  to  what 
Brett,  L.  J.,  has  said  about  that.  It  seems  to  me  that  a  good  deal 
of  confusion  would  be  caused,  if  one  were  to  suppose  that  insurers 
are  in  the  position  of  sureties.  A  surety  is  a  person  who  answers 
for  the  default  of  another,  and  an  insurer  is  a  person  who  guarantees 
against  loss  by  an  event.  The  default  or  nondefault  of  another,  as 
between  that  other  and  the  person  who  is  insured,  may  diminish  or 
increase  the  loss;  but  what  the  insurer  is  guaranteeing  is  not  the 
default  of  that  person,  he  is  guaranteeing  that  no  loss  shall  happen 
by  the  event.  And  subrogation  is  itself  only  the  particular  appli- 
cation of  the  principle  of  indemnity  to  a  special  subject-matter,  and 
there  I  think  is  where  the  learned  judge  has  gone  wrong.  He  has 
taken  the  term  "subrogation,"  and  has  applied  it  as  if  it  were  a 
hard  and  fast  line,  instead  of  seeing  that  it  is  part  of  the  law  of 
indemnity.  If  there  are  means  of  diminishing  the  loss,  the  insurer 
may  pursue  them,  whether  he  is  asking  for  contracts  to  be  carried 
out  in  the  name  of  the  assured,  or  whether  he  is  suing  for  tort.  It 
is  said  that  the  law  only  gives  the  underwriters  the  right  to  stand 
in  the  assured's  shoes  as  to  rights  which  arise  out  of,  or  in  conse- 
quence of,  the  loss.  I  "enture  to  think  there  is  absolutely  no 
authority  for  that  proposition.  The  true  test  is,  can  the  right  to  be 
insisted  on  be  deemed  to  be  one  the  enforcement  of  which  will 
diminish  the  loss?  In  this  case  the  right,  whatever  it  be,  has  been 
actually  enforced,  and  all  that  we  have  to  consider  is  whether  the 
fruit  of  that  right  after  it  is  enforced  does  not  belong  to  the  insurers. 
It  is  insisted  that  only  those  payments  are  to  be  taken  into  con- 
sideration which  have  been  made  in  respect  of  the  loss.  I  ask  why, 
and  where  is  the  authority?  If  the  payment  diminishes  the  loss,  to 
my  mi.id  it  falls  within  the  application  of  the  law  of  indemnity.  On 
this  point  I  should  like  to  pause  one  instant  to  consider  the  defini- 
tion which  Brett,  L.  J.,  has  given.  It  does  seem  to  me,  that  taking 
his  language  in  the  widest  sense,  it  substantially  expresses  what  I 
should  wish  to  express  with  only  one  small  appendage  that  I  desire 
to  make.     I  wish  to  prevent  the  danger  of  his  definition  being  sup- 


548  SUBROGATION. 

posed  to  be  exhaustive  by  saying  that  if  anything  else  occurs  outside 
it  the  general  law  of  indemnity  must  be  looked  at. 

With  regard  to  gifts,  all  that  is  to  be  considered  is,  has  there 
been  a  loss,  and  what  is  the  loss,  and  has  that  loss  been  in  sub- 
stance reduced  by  anything  that  has  happened?  Now  I  admit  that 
in  the  vast  majority  of  cases  it  is  difficult  to  conceive  a  voluntary 
gift  which  does  reduce  the  loss.  I  do  not  think  that  the  question 
of  gift  was  the  root  of  the  decision  in  Bunnind  v.  Rodocanachi,  7 
App.  Cas.  Ill,  although  it  seems  to  me  that  it  was  a  very  essen- 
tial matter  in  considering  the  case.  I  think  the  root  of  the 
decision  in  Bumand  v.  Rodotanachi,  was  that  the  payment  wliich 
had  been  made  did  not  reduce  the  loss,  not  having  been  intended 
to  do  so.  The  truth  was  that  the  English  government  and  the 
American  government  agreed  that  the  sums  which  were  to  be  paid 
were  to  be  paid,  not  in  respect  of  the  loss,  but  in  respect  of  some- 
thing else,  and  therefore  the  payment  could  not  be  a  reduction  of 
the  loss.  Suppose  that  a  man  who  has  insured  his  house  has  it 
damaged  by  fire,  and  suppose  that  his  brother  offers  to  give  him  a 
sum  of  money  to  assist  him.  The  effect  on  the  position  of  the 
underwriters  will  depend  on  the  real  character  of  the  transaction. 
Did  the  brother  mean  to  give  the  money  for  the  benefit  of  the  insur- 
ers as  well  as  for  the.  benefit  of  the  assured?  If  he  did,  the  insurers, 
it  seems  to  me,  are  entitled  to  the  benefit,  but  if  he  did  not,  but  only 
gave  it  for  the  benefit  of  the  assured,  and  not  for  the  benefit  of  the 
underwriters,  then  the  gift  was  not  given  to  reduce  the  loss,  and  it 
falls  within  Bumand  v.  Rodocanachi,  7  App.  Cas.  333.  If  it  was 
given  to  reduce  the  loss,  and  for  the  benefit  of  the  insurers  as  well 
as  the  assured,  the  case  would  fall  on  the  other  side  of  the  line,  and 
be  within  Randal  v.  Cockran,  i  Ves.  Sr.  98,  to  which  allusion  has 
been  made.  In  the  present  case  the  vendors  have  been  paid  the 
whole  of  their  purchase-money.  Even  if  they  had  not  been  paid, 
but  had  still  the  purchase-money  outstanding,  they  would  have  had 
some  beneficial  interest  in  the  nature  of  their  vendor's  lien.  An 
unpaid  vendor's  lien  is  worth  something,  I  suppose.  I  do  not  say 
that  it  is  necessary  to  decide  the  point,  and  I  only  mention  it  to 
make  more  clear  my  view  of  this  case,  not  as  laying  down  the  law 
for  future  occasions.  But  if  an  unpaid  vendor's  lien  is  worth  some- 
thing, on  what  principle  could  a  vendor  keep  the  unpaid  vendor's 
lien  and  be  paid  for  it  by  the  insurers?  In  such  a  case  he  would  be 
taking  with  both  hands.  Now  why  should  not  underwriters  be 
entitled  at  all  events  to  insist  on  the  vendor's  lien?  As  to  specific 
performance,  I  say  nothing.  I  am  not  familiar,  as  Cotton,  L.  J., 
is    with   that  branch   of   the   law,  and   there   may  be  some  special 


SUBROGATION. 


549 


reasons  why  the  insurers  should  not  be  able  to  insist  upon  specific 
performance;  but  why  should  not  they  insist  upon  the  unpaid  ven- 
dor's lien?  The  vendor,  if  he  did  not  exercise  it  for  their  benefit, 
would  be  trying  to  mike  the  contract  between  himself  and  the 
insurers  more  than  a  contract  of  indemnity.  Chitty,  J.,  seems  to 
think  that  in  this  instance,  it  is  necessary  to  recollect  that  the  con- 
tract of  sale  was  not  a  contract,  either  directly  or  indirectly,  for  the 
preservation  of  the  buildings  insured;  that  the  contract  of  insurance 
was  a  collateral  contract  wholly  distinct  from,  and  unaffected  by, 
the  contract  of  sale.  What  does  it  matter?  The  beneficial  interest 
of  the  vendors  in  the  house  depends  on  the  contract  being  fulfilled 
or  not,  and  the  fulfillment  of  the  contract  lessens  the  loss,  its  non- 
fulfillment affects  it.  Chitty,  J.,  indeed,  says  further  that  "  the 
attempt  now  made  is  to  convert  the  insurance  against  loss  by  fire 
into  an  insurance  of  the  solvency  of  the  purchaser."  8  Q.  B.  Div. 
621.  That  may  be  answered  in  the  same  way.  It  is  not  that  the 
solvency  of  the  purchaser  is  guaranteed,  but  that  the  vendors  are 
guaranteed  against  the  loss  which  is  diminished  or  increased  accord- 
ing as  the  purchaser  turns  out  to  be  solvent  or  not.  The  solvency 
of  the  purchaser  affects  the  loss,  — that  is  the  only  way  in  which  it 
touches  the  insurance,  — it  is  not  because  the  insurance  is  directly 
an  insurance  of  his  solvency.  Finally  (and  this  is  the  last  observa- 
tion that  I  wish  to  make  upon  the  judgment  of  Chitty,  J.),  he  puts 
the  case  of  a  landlord  insuring,  and  the  tenant  under  no  obligation 
to  repair.  He  takes  a  case,  "  where  under  an  informal  agreement 
evidently  drawn  by  the  parties  themselves,  the  large  rent  of  ^700 
was  reserved,  and  the  tenant,  notwithstanding  the  fire,  was  bound 
to  pay  the  rent."  He  says,  "Assume  that  the  building  in  such  a 
case  was  ruinous,  and  would  last  the  length  of  the  term  only. 
Could  the  insurers  recover  a  proportionate  part  of  each  payment  of 
rent  as  it  was  made,  or  could  they  wait  until  the  end  of  the  term, 
and  then  say  in  effect,  '  You  have  been  paid  for  the  whole  value  of 
the  building,  and  therefore  we  can  recover  against  you?  '  "  That 
seems  to  me  at  first  sight  to  look  as  if  it  were  a  very  difficult  point 
but  I  think  this  difficulty  diminishes,  if  it  does  not  vanish,  as  soon 
as  it  is  considered  what  are  the  conditions  of  the  hypothesis.  Is  the 
learned  judge  supposing  that  the  landlord,  who  is  a  person  with  a 
limited  interest,  did  intend  to  insure  all  other  interests  besides  his 
own?  The  landlord  can  do  so  if  he  so  intended;  the  question  is, 
has  he  done  so?  If  the  landlord  intended  to  insure  all  other  inter- 
ests besides  his  own,  the  diffi-^ulty  dis'-;ipatris  itself  into  thin  air.  If 
he  did  not,  it  would  be  a  v  ry  0  i  !  cise,  :r,i(l  perhaps  one  might  ride 
safely  at  anchor  by  say'n^  t'lat  one  wo.ilJ  wait  till  it  arose.      But  I 


550  SUBROGA'lION. 

am  not  desirous  of  being  over  cautious,  because  I  am  satisfied  to 
rest  on  the  broad  principle  of  indemnity,  and  1  say,  "Apply  the 
broad  principle  of  indemnity,  and  you  have  the  answer."  The 
vendor  cannot  recover  for  greater  loss  than  he  suffers,  and  if  he 
has  only  a  limited  interest  in  the  subject-matter,  and  only  intends 
to  insure  that  interest,  I  know  of  no  means  in  law  or  equity  by 
which  he  is  entitled  to  obtain  anything  else  out  of  the  insurance 
office  except  what  is  measured  by  the  measure  of  his  loss.  As  to 
the  form  of  action,  I  need  add  nothing  to  what  has  fallen  already 
from  the  other  members  of  the  court.  I  am  so  much  in  accord  with 
their  views  that  I  should  not  have  added  a  judgment  as  long  as  mine 
has  been  if  it  were  not  for  the  very  great  importance,  to  my  mind, 
of  keeping  clear  in  these  insurance  cases  what  is  really  the  basis  and 
foundation  of  all  insurance  law. 

Judgment  reversed. 


2.  Tort. 


CONNECTICUT  FIRE  INSURANCE  CO.  v.  ERIE  RAILWAY  CO. 

73  N.  Y.  399. —  1878. 

Appeal  from  a  judgment  of  the  General  Term,  affirming  a  judg- 
ment in  favor  of  defendant,  entered  upon  an  order  setting  aside  a 
verdict  in  favor  of  plaintiff,  and  dismissing  the  complaint.  (Reported 
below  10  Hun,  59  )  This  action  was  brought  to  recover  the  amount 
of  a  loss  paid  by  plaintiff  under  a  policy  of  insurance  issued  by  it 
which  loss  it  alleged  was  occasioned  by  defendant's  negligence. 

Church  C.  J.  —  It  must  be  assumed  from  the  verdict  of  the  jury 
that  the  buildings  were  burned  through  the  negligence  of  the 
defendant's  agents  and  servants,  and  it  is  too  well  settled  to  render 
the  citation  of  authorities  necessary,  that  as  between  the  plaintiff, 
the  insurer,  and  the  defendant,  the  latter  was  ultimately  liable 
for  the  loss.  A  fire  policy  is  a  contract  of  indemnity,  and  if  a  loss  is 
occasioned  by  the  wrongful  act  of  another  the  insurer  is  subrogated 
to  the  rights  and  remedies  of  the  assured,  and  may  maintain  an 
action  against  the  wrongdoer.  If  the  assured  receives  the  damages 
from  the  wrongdoer  before  payment  by  the  insurer,  the  amount  so 
received  will  be  applied//-^  tanto  in  discharge  of  the  policy.  Hart 
v.  Railroad  Corp.,  13  Mete.  (Mass.)  99.  If  the  wrong-doer  pays  the 
assured  after  payment  by  the  insurer,  with  knowledge  of  the  facts, 
it  is  regarded  as  a  fraui  upon  the  insurer,  and  he  will  not  be  pro- 
tected from  liability  to  the  latter.      C/ark  v.  Wilso/i,  103  Mass.  223; 


SUBROGATION.  55 1 

Insurance  Co.  \.  Hutchinson.,  21  N.  J.  Eq.   107;   Graff  y.  Kip,  1  Edw. 
Ch.  621. 

The  question  is  presented  in  this  case  in  a  somewhat  novel  aspect, 
and  unlike  that  of  any  other  case  to  which  our  attention  has  been 
called.  The  plaintiff  paid  the  policy  after  the  release  by  the  assured 
to  the  defendant,  and  by  consenting  to  the  judgment  the  payment 
must  be  regarded  as  voluntary  on  its  part.  If  the  plaintiff  might 
have  interposed  the  payment  by  the  defendant  to  the  assured,  and 
the  release  as  a  defense  to  an  action  by  the  latter  upon  the  policy, 
then  the  plaintiff  cannot  maintain  this  action.  This  question  and 
the  liability  of  the  defendant  depend  upon  the  construction  to  be 
put  upon  the  release,  or  rather  if  that  construction  be  in  favor  of 
the  plaintiff  it  will  be  unnecessary  to  notice  any  other  point.  The 
release  is  as  follows: 

"  Loss  and  Damage. 
"  Erie  Railway  Company,  to  John  Martin,  Salisbury  Mills,  Dr. 

"  For  settlement  in  full  of  all  claims,  demands  and  causes  of 
action  against  the  Erie  Railway  Company  for  loss  and  damage  by 
fire,  claimed  to  have  been  caused  by  sparks  or  coals  from  engine, 
burning  hotel  building,  barn,  shed  and  contents,  fences,  trees,  etc., 
at  Salisbury  station,  on  or  about  May  13,  1873,  $2,100. 

"  This  settlement  is  not  intended  to  discharge  the  Connecticut 
Fire  Insurance  Company  from  any  claim  which  said  Martin  has 
against  them  for  insurance,  but  as  a  full  settlement  with,  and  dis- 
charge of,  the  Erie  Railway  Company  only. 

"  Received,  September  10,  1873,  of  the  Erie  Railway  Company, 
through  the  hands  of  R.  L.  Brundage,  claim  agent,  two  thousand 
one  hundred  dollars,  in  full  of  the  above  amount. 

"$2,100.  .  John  Martin." 

It  is  proper  to  refer  to  the  surrounding  circumstances.  The  build- 
ings burned  were  worth  about  $3,400.  Of  the  consideration  paid 
for  the  release  $300  was  paid  for  a  parcel  of  land  conveyed  to  the 
defendant,  leaving  $1,800  paid  for  the  damage  to  the  buildings. 
The  clause  that  the  settlement  was  not  intended  to  discharge  the 
plaintiff  from  any  claim  of  the  assured  against  it  for  insurance  was 
in  the  nature  of  a  proviso  or  exception  from  the  general  purview  of 
the  release.  It  must  be  construed  so  as  to  carry  out  the  intent  of 
the  parties,  and  that  intent  must  be  determined  from  the  language 
viewed  in  the  light  of  surrounding  circumstances.  It  is  evident 
that  the  assured  did  not  receive  the  full  amount  of  the  damages 
incurred.     This  circumstance  sheds  some  light  upon  the  meaning  of 


y-,2  SUBROGATION. 

the  release.  The  clause  was  intended  for  some  purpose,  and  it 
seems  to  me  obvious  that  it  was  designed  to  present  the  plaintiff 
from  interposing  the  release  as  a  defense  to  an  action  on  the  policy, 
and  it  is  inferable  that  the  amount  of  the  policy  was  deducted  from 
the  am.)unt  of  the  loss  in  the  settlement  with  the  defendant.  The 
substance  of  the  transaction  was  that  the  assured,  having  a  claim 
against  the  plaintitf  for  $1,500,  settled  with  and  released  the 
defendant  from  liability  for  the  balance,  retaining  the  claim  against 
the  plaintiff.  The  form  of  the  clause  is  not  very  specific,  but  look- 
ing at  the  substance  it  was  a  proviso  that  the  release  should  not 
operate  to  prevent  a  recovery  upon  the  policy  against  the  plaintiff. 
With  such  a  proviso,  other  portions  of  the  release  would  have  to 
yield  to  enable  the  proviso  to  have  effect,  and  as  to  the  plaintiff  it 
would  be  the  same  as  though  no  release  had  been  given.  It  follows 
that  the  plaintiff  could  not  have  interposed  the  release  as  a  defense 
in  an  action  by  the  assured  upon  the  policy,  and  if  not,  the  logical 
sequence  is  that  the  right  of  subrogation  inures  against  the  defendant. 

It  is  insisted  that  as  the  assured  has.  settled  and  released  all  his 
claim  for  damages,  the  plaintiff  could  acquire  no  right  or  remedy 
through  him  by  equitable  subrogation,  or  from  him  by  assignment. 
This  propositioii  implies  an  assumption  of  the  controverted  fact 
whether  the  assured  did  release  all  claim.  The  answer  to  it  is  that 
the  assured  released  only  such  damages  as  he  could  without  inter- 
fering with  his  claim  against  the  plaintiff,  and  the  legal  consequences 
must  be  regarded  as  a  part  of  the  exception,  viz.,  the  right  of  tbe 
plaintiff  to  a  remedy  over.  This  was  as  mjch  reserved  as  the  right 
to  enforce  the  policy.  That  right  could  not  be  reserved  without 
reserving  the  remedy.  The  power  to  enforce  the  policy  having 
been  expressly  reserved,  the  parties  could  not  take  away  the  right 
of  the  plaintiff  to  the  remedy  which  that  reservation  vested  in  him 
by  law.  Having  made  their  agreement  so  as  to  prevent  the  plain- 
tiff from  interposing  this  defense,  they  cannot  object  to  the  conse- 
quences which  legally  flow  from  it.  The  exception  necessarily 
embraces  the  right  of  subrogation.  It  is  not  needful  to  consider 
whether  the  effect  would  have  been  different  if  the  assured  had 
received  the  full  amount  of  the  loss.  No  injustice  is  done  the 
defendant  by  the  result  indicated.  It  was  liable  for  the  whole  loss, 
•and  the  payment  to  the  plaintiff  of  the  amount  of  the  policy  will, 
with  that  already  paid,  not  exceed  that  amount  It  did  not  profess 
to  pay  the  assured  but  a  part  of  that  amount,  nor  did  the  assured 
intend  to  receive  but  a  part,  and  the  legal  construction  of  the  con- 
tract accords  with  the  principles  of  right  and  justice. 

The  action  is  properly  brought  in  the  name  of  the  plaintiff.     No 


SUBROGATION.  553 

Other  person  has   any  right   or  interest  in   the  claim.     Code,  §  in; 
Cummings  v.  Morris,  25  N,  Y.  627. 

The  judgment  must  be  reversed  and  judgment  ordered  on  verdict. 

All  concur,  e.\cept  Miller,   J.,  absent. 

JirJgiiit'nt  accordingl}^ 


3.  Carriers. 


PHCENIX  INSURANCE  CO.  v.  ERIE  AND  WESTERN  TRANS- 
PORTATION CO. 

117  U.  S.  312.  —  1886. 

Libel  in  admiralty  against  a  common  carrier  by  an  insurance 
company  which  had  insured  the  owners  upon  the  goods  carried,  and 
had  paid  them  the  amount  of  the  insurance,  and  claimed  to  be  sub- 
rogated to  their  rights  against  the  carrier.  The  bill  of  lading  pro- 
vided that  the  carrier  was  not  to  be  liable  for  loss  or  damage  by 
fire,  collision,  or  dangers  of  navigation,  and  that  the  carrier  when 
liable  for  the  loss  "  shall  have  the  full  benefit  of  any  insurance  that 
may  have  been  effected  upon,  or  on  account  of  "  the  goods.  The 
policy  contained  no  stipulation  upon  the  subject  of  subrogation. 
The  defense  relied  upon  was  the  provision  in  the  bill  of  lading  that 
the  carrier  was  to  have  the  benefit  of  any  insurance.  The  District 
Court  held  the  provision  to  be  valid,  and  that  no  right  of  subroga- 
tion accrued  to  the  libellant.  Upon  appeal  the  Circuit  Court  found 
as  a  conclusion  of  law  that  the  libellant  did  not  succeed  to  the 
rights  of  action  of  the  shippers. 

Mr.  Justice  Gray.  — *  *  *  xhe  policy  of  insurance  contains 
no  e.xpress  stipulation  for  the  assignment  to  the  insurer  of  the 
assured's  right  of  action  against  third  persons.  In  the  bills  of  lad- 
ing, it  is  expressly  stipulated  that:-  the  carriers,  whose  railroad  or 
vessels  form  part  of  the  line  of  transportation,  shall  not  be  liable 
for  loss  or  damage  by  fire,  collision,  or  dangers  of  navigation;  and 
that  each  carrier  shall  be  liable  only  for  a  loss  of  the  goods  while 
in  its  custody,  "  and  the  carrier  so  liable  shall  have  the  full  benefit 
of  any  insurance  that  may  have  been  effected  upon  or  on  account 
of  said  goods." 

The  question  is,  whether  under  these  circumstances  the  insurer, 
upon  payment  of  a  loss,  became  subrogated  to  the  right  to  recover 
damages  from  the  carrier.  When  goods  insured  are  totally  lost, 
actually  or  constructively,  by  perils  insured  against,  the  insurer, 
upon  payment  of  the  loss,  doubtless  becomes  subrogated  to  all  the 


554  SUBROGATION. 

assured's  rights  of  action  against  third  persons  who  have  caused  or 
are  responsible  for  the  loss.  No  express  stipulation  in  the  policy 
of  insurance,  or  abandonment  by  the  assured,  is  necessary  to  per- 
fect the  title  of  the  insurer.  From  the  very  nature  of  the  contract 
of  insurance  as  a  contract  of  indemnity,  the  insurer,  when  he  has 
paid  to  the  assured  the  amount  of  the  indemnity  agreed  on  between 
them,  is  entitled,  by  way  of  salvage,  to  the  benefit  of  anything  that 
may  be  received,  either  from  the  remnants  of  the  goods,  or  from 
damages  paid  by  third  persons  for  the  same  loss  Bat  the  insurer 
stands  in  no  relation  of  contract  or  of  privity  with  such  persons. 
His  title  arises  out  of  the  contract  of  insurance,  and  is  derived  from 
the  assured  alone,  and  can  only  be  enforced  in  the  right  of  the  lat- 
ter. In  a  court  of  common  law,  it  can  only  be  asserted  in  his  name, 
and,  even  in  a  court  of  equity  or  of  admiralty,  it  can  only  be 
asserted  in  his  right.  In  any  form  of  remedy,  the  insurer  can  take 
nothing  by  subrogation  but  the  rights  of  the  assured.  Comegys  v. 
Vasse,  I  Pet.  193,  214;  Fretz  v.  Biill^  12  IIow.  466,  468;  The  Mon- 
ticello,  17  How.  152,  155;  Garrison  v.  Memphis  Ins.  Co.,  19  How. 
312,  317  ;  Hall  V.  Railroad  Cos.^  13  Wall.  367,  370,  371 ;  The  Potomac, 
105  U.  S.  630,  634,  635  ;  Mobile  &•  Montgomery  Railway  v.  Jurey,  iii 
U.  S.  584,  594;  Clark  v.  Wilson,  103  Mass.  219;  Simpson  \.  Thom- 
son, 3  App.  Cas.  279,  286,  292,  293.  That  the  right  of  the  assured 
to  recover  damages  against  a  third  person  is  not  incident  to  the 
property  in  the  thing  insured,  but  only  a  personal  right  of  the 
assured,  is  clearly  shown  by  the  fact  that  the  insurer  acquires  a 
beneficial  interest  in  that  right  of  action,  in  proportion  to  the  sum 
paid  by  him,  not  only  in  the  case  of  a  total  loss,  but  likewise  in  the 
case  of  partial  loss,  and  when  no  interest  in  the  property  is  aban- 
doned or  accrues  to  him.  Hall  v.  Railroad  Cos.,  The  Potomac, 
Simpson  v.  Thomson,  above  cited. 

The  right  of  action  against  another  person,  the  equitable  interest 
in  which  passes  to  the  insurer,  being  only  that  which  the  assured 
has,  it  follows  that  if  the  assured  has  no  such  right  of  action,  none 
passes  to  the  insurer;  and  that  if  the  assured's  right  of  action  is 
limited  or  restricted  by  lawful  contract  between  him  and  the  person 
sought  to  be  made  responsible  for  the  loss,  a  suit  by  the  insurer,  in 
the  right  of  the  assured,  is  subject  to  like  limitations  or  restrictions. 
For  instance,  if  two  ships,  owned  by  the  same  person,  come  into 
collision  by  the  fault  of  the  master  and  crew  of  the  one  ship  and  to 
the  injury  of  the  other,  an  underwriter  who  has  insured  the  injured 
ship,  and  received  an  abandonment  from  the  owner,  and  paid  him 
the  amount  of  the  insurance  as  and  for  a  total  loss,  acquires  thereby 
no  right  to  recover  against  the  other  ship,  because  the  assured,  the 


SUBROGATION.  555 

owner  of  both  ships,  could   not  sue  himself.     Simpson  \.  Thomson, 
above  cited;  Globe  Ins.  Co.  v.  Sherlock,  25  Ohio  St    50,  68. 

Upon  the  same  principle,  any  lawful  stipulation  between  the 
owner  and  the  carrier  of  the  goods,  limiting  the  risks  for  which  the 
carrier  shall  be  answerable,  or  the  time  of  making  the  claim,  or 
the  value  to  be  recovered,  applies  to  any  suit  brought  in  the  right  of 
the  owner,  for  the  benefit  of  his  insurer,  against  the  carrier;  as,  for 
instance,  if  the  contract  of  carriage  expressly  exempts  the  carrier 
from  liability  for  losses  by  fire,  Yo?-k  Co.  v.  Central  Railroad,  3  Wall. 
107;  or  requires  claims  against  the  carrier  to  be  made  within  three 
months,  Express  Co.  v.  Caldwell,  21  Wall.  264;  or  fixes  the  value  for 
which  the  carrier  shall  be  responsible,  Ilari  v.  Pennsylvania  Rail- 
road, 112  U.  S.  331.  So  the  stipulation,  not  now  in  controversy,  in 
the  bills  of  lading  in  the  present  case,  making  the  value  of  the 
goods  at  the  place  and  time  of  shipment  the  measure  of  the  carrier's 
liability,  would  control,  although  in  the  absence  of  such  a  stipula- 
tion the  carrier  would  be  liable  for  the  value  at  the  place  of  destina- 
tion, as  held  in  Mobile  &"  Montgomery  Raihvay  v.  Jurey,  1 1 1  U.S.  584. 
The  stipulation  in  these  bills  of  lading,  that  the  carriers  "  shall 
not  be  liable  for  loss  or  damage  by  fire,  collision,  or  the  dangers  of 
navigation,"  clearly  does  not  protect  them  from  liability  for  any 
loss  occasioned  by  their  own  negligence.  By  the  settled  doctrine  of 
this  court,  even  an  express  stipulation  in  the  contract  of  carriage, 
that  a  common  carrier  shall  be  exempt  from  liability  for  losses 
caused  by  the  negligence  of  himself  and  his  servants,  is  unreason- 
able and  contrary  to  public  policy,  and  therefore  void.  Railroad 
Co.  v.  Lockwood,  17  Wall.  357;  Railroad  Co.  v.  Pratt,  22  Wail.  123; 
Bank  of  Kentucky  v.  Adams  Express  Co.,  93  U.  S.  174;  Railway  Co. 
V.  Stevens,  95  U.  S.  655.  And  it  may  be  that,  as  held  by  Judge 
Wallace  in  a  case  in  the  Circuit  Court,  a  stipulation  that  "  no  dam- 
age that  can  be  insured  against  will  be  paid  for  "  would  not  protect  the 
carrier  from  liability  for  his  own  negligence,  because  that  would  be 
to  compel  the  owners  of  the  goods  to  insure  against  the  negligence 
of  the  carrier       The  Hadji,  22  Blatchford,  235. 

But  the  stipulation  upon  the  subject  of  insurance,  in  the  bills  of 
lading  before  us,  is  governed  by  other  considerations.  It  does  not 
compel  the  owner  of  the  goods  to  stand  his  own  insurer,  or  to  obtain 
insurance  on  the  goods;  nor  does  it  exempt  the  carrier,  in  case  of 
loss  by  negligence  of  himself  or  his  servants,  from  liability  to  the 
owner,  to  the  same  extent  as  if  the  goods  were  uninsured.  It  sim- 
ply provides  that  the  carrier,  when  liable  for  the  loss,  shall  have 
the  benefit  of  any  insurance  effected  upon  the  goods. 

It  is  conclusively  settled,  in  this  country  and  in  England,  that  a 


556  SUBROGATION. 

policy  of  insurance,  taken  out  by  the  owner  of  a  ship  or  goods, 
covers  a  loss  by  perils  of  the  sea  or  other  perils  insured  against, 
although  occasioned  by  the  negligence  of  the  master  or  crew  or 
other  persons  employed  by  himself.  Waters  v.  Merchants'  Louisville 
Ins  Co.,  II  Pet.  213;  Copelandv.  Neiv  England  Ins.  Co.,  2  Met.  432; 
General  Ins.  Co.  v.  Sherivood,  14  How.  351,  366;  Davidsons  Bur- 
nand,  L.  R.  4  C.  P.  117,  121.  Any  one  who  has  made  himself 
responsible  for  the  safety  of  goods  has  a  sufficient  interest  in  them 
to  enable  him  to  obtain  insurance  upon  them.  *  *  *  As  the 
carrier  might  lawfully  himself  obtain  insurance  against  the  loss  of 
the  goods  by  the  usual  perils,  though  occasioned  by  his  own  negli- 
gence, he  may  lawfully  stipulate  with  the  owner  to  be  allowed  the 
benefit  of  insurance  voluntarily  obtained  by  the  latter.  This  stipu- 
lation does  not,  in  terms  or  in  effect,  prevent  the  owner  from  being 
reimbursed  the  full  value  of  the  goods;  but  being  valid  as  between 
the  owner  and  the  carrier,  it  does  prevent  either  the  owner  him- 
self, or  the  insurer,  who  can  only  sue  in  his  right,  from  main- 
taining an  action  against  the  carrier  upon  any  terms  inconsistent 
with  this  stipulation. 

Nor  does  this  conclusion  impair  any  lawful  rights  of  the  insurer. 
His  fight  of  subrogation,  arising  out  of  the  contract  of  insurance 
and  payment  of  the  loss,  is  only  to  such  rights  as  the  assured  has, 
by  law  or  contract,  against  third  persons.  The  policy  containing  no 
express  stipulation  upon  the  subject,  and  there  being  no  evidence 
of  any  fraudulent  concealment  or  misrepresentation  by  the  owner  in 
obtaining  the  insurance,  the  existence  of  the  stipulation  between  the 
owner  and  the  carrier  would  have  afforded  no  defense  to  an  action 
on  the  policy,  according  to  two  careful  judgments  rendered  in  June 
last  and  independently  of  each  other,  the  one  by  the  English  Court 
of  Appeal,  and  the  other  by  the  Supreme  Judicial  Court  of  Massa- 
chusetts. Tate  V.  Hyslop,  15  Q.  B.  D.  368;  Jackson  Co.  v.  Boylston 
Ins.  Co.,  139  Mass.  508.  In  Tate  v.  Hyslop,  owners  of  goods,  insured 
against  risks  in  crafts  or  lighters,  had  previously  agreed  with  a 
lighterman  that  he  should  not  be  liable  for  any  loss  in  crafts  except 
loss  caused  by  his  own  negligence,  and  did  not  disclose  this  agree- 
ment to  the  underwriters  at  the  time  of  procuring  the  insurance. 
The  sole  ground  on  which  it  was  held  that  the  owners  could  not 
recover  on  the  policy  was  that  this  agreement  was  material  to  the 
risk,  because  the  underwriters,  as  the  assured  knew,  had  previously 
established  two  rates  of  premium,  depending  on  the  question 
whether  they  would  have  recourse  over  against  the  lighterman. 
Lord  Justice  Brett  observed  that,  hut  for  the  two  rates  of  premium 
established   by   the   underwriters  and    known   to   the  assured,    the 


SUBROGATION,  557 

omission  of  the  assured  to  disclose  their  agreement  with  the  lighter- 
men could  only  have  affected  the  amount  of  salvage  which  the 
underwriters  might  have,  and  would  have  been  immaterial  to  the 
risk,  and  consequently  to  the  insurance.  15  Q.  B.  D.  375,  376.  In 
Jackson  Co.  v.  Boyhton  Ins.  Co..,  it  was  adjudged  that,  in  the  absence 
of  any  fraud  or  intentional  concealrrent,  the  undisclosed  existence 
of  a  stipulation  between  the  assured  and  the  carrier,  like  that  now 
before  us,  afforded  no  defense  to  an  action  on  the  policy. 

It  may  be  added  that  our  conclusion  accords  wit!i  the  decision  of 
Judge  Shipman  in  Rintoulx.  Neiv  York  Central  Railroad,  21  Blatch- 
ford,  439,  as  well  as  with  those  of  Judge  Dyer  in  the  District  Court, 
and  Judge  Drummond  in  the  Circuit  Court,  in  the  present  case.  10 
Bissell,  t8,  I'i.  See  also  Car  stairs  v.  Mechanics  >S-^  Traders  Ins. 
Co.,  18  Fed.  Rep.  473;  The  Sidney.  23  Fed.  Rep.  88;  Mercantile  Ins. 
Co.  V.  Calebs,  20  N.  Y.  173. 

Decree  affirmed. 

Mr.  Justice  Bradlev,  dissented. 


FAYERVVEATHER  et  al.  v.  PHENIX  INSURANCE  CO. 

118  N.  Y.  324.—  1890. 

Appeal  from  Superior  Court  of  New  York  city,  General  Term 
Action  by  Daniel  B.  Fayerweather  and  Henry  S.  Ladew  against  the 
Phenix  Insurance  Company.      A  judgment  dismissing  the  complaint 
was  affirmed  by  the  General  Term  of  the  Superior  Court,  and  plain- 
tiffs appeal. 

Follett,  C.  J.  — The  plaintiffs  were  the  owneis  of  211  bales  of 
leather,  which  the  Old  Dominion  Steam-Ship  Company  undertook 
to  transport  by  its  steamer  Guyandotte  from  Norfolk,  Va.,  to  New 
York,  and  deliver  to  the  owners.  The  vessel  reached  New  York 
June  17,  1885,  with  the  leather  safe  on  board,  and  within  twenty- 
four  hours  after  arrival  she  sunk  at  her  dock  through  the  negligence 
of  the  employees  of  the  steamship  company.  By  this  accident  the 
leather  was  injured,  as  it  is  agreed,  to  the  plaintiffs'  damage  in  the 
sum  of  $1,295.32.  In  considering  this  case  the  liability  of  the  car- 
rier to  the  owners  of  the  leather  for  this  loss  will  be  assumed. 

The  bill  of  lading  under  which  the  leather  was  shipped  contained 
this  provision:  "  It  is  further  stipulated  and  agreed  that  in  case  of 
any  loss,  detriment,  or  damage  to  be  sustained  by  any  of  the  prop- 
erty herein  receipted  for  during  such  transportation,  whereby  any 
legal  liability  or  responsibility  shall  or  may  be  incurred  by  the  terms 


558  ■  SUBROGATION. 

of  this  contract,  that  company  alone  shall  be  held  answerable 
therefor  in  whose  actual  custody  the  same  may  be  at  the  time  of 
happening  of  such  loss,  detriment,  or  damage,  and  the  carrier  so 
liable  shall  have  the  full  benefit  of  any  insurance  that  may  have  been 
effected  upon  or  on  account  of  said  goods.  " 

The  defendant  insured  the  plaintiffs  against  the  loss  sustained  by 
them,  by  an  open,  time,  marine  policy,  which  contained  these  prcr- 
visions:  "  In  the  event  of  loss,  the  assured  agrees  to  subrogate  to 
tV)e  insurers  all  their  claims  against  the  transporters  of  said  mer- 
chandise, not  exceeding  the  amount  paid  by  said  insurers.  *  *  * 
In  case  of  any  agreement  or  act,  past  or  future,  by  the  insured, 
whereby  any  right  of  recovery  of  the  insured,  against  any  persons 
or  corporations,  is  released  or  lost,  which  would,  on  acceptance  of 
abandonment  or  payment  of  loss  by  this  company,  belong  to  this 
company,  but  for  such  agreenient  or  act,  or  in  case  this  insurance  is 
made  for  the  benefit  of  any  carrier  or  bailee  of  the  property  insured 
other  than  the  person  named  as  insured,  the  company  shall  not  be 
bound  to  pay  any  loss;  but  its  right  to  retain  or  recover  the  pre- 
mium shall  not  be  affected." 

This  action  is  prosecuted'  by  the  assured  owners  to  recover  from 
the  insurer  their  loss  so  sustained;  and  it  is  defended  on  the 
ground  that  the  owners  violated  the  provision  of  the  contract  of 
insurance  above  quoted  by  contracting  with  the  carrier,  without  the 
insurer's  knowledge,  that  the  carrier,  in  case  of  liability  for  loss, 
should  have  the  benefit  of  the  insurance,  and,  in  effect,  that  the 
insurer,  on  paying  the  owners'  loss,  should  be  deprived  of  its  right 
to  be  subrogated  to  the  owners'  right  of  action  against  the  carrier 
for  injury  to  the  leather.  When  goods  in  the  hands  of  a  common 
carrier  for  transportation  are  insured  by  the  owner,  and  are  subse- 
quently lost  or  injured  under  circumstances  rendering  the  carrier 
liable  to  the  owner  for  the  damages,  and  the  insurer  pays  the  loss- 
to  the  owner,  the  insurer,  in  the  absence  of  stipulations  between 
the  carrier  and  owner  defeating  the  right,  is  entitled  to  be  subro- 
gated to  the  rights  and  remedies  of  the  owner  against  the  carrier. 
Ifall  V.  Railroad  Co.,  13  Wall.  367;  Insurance  Co.  v.  Railway  Co..,  73. 
N.  Y.  399;  Sheld.  Subr.,  §  329.  But  the  struggle  between  carriers 
and  insurers  to  escape  the  liabdity  imposed  under  the  usual  bills  of 
lading  and  policies,  by  casting  the  burden  of  the  loss  upon  the  other 
by  the  insertion  of  unusual  and  astute  provisions  in  their  respective 
contracts  with  the  owner,  has  rendered  this  simple  rule  of  law  (juite 
inapplicable  to  many  of  the  cases  arising  under  such  special  con- 
tracts. 

The  provision  quoted  from  the  bill  of  lading  cut  off  the  insurer's 


SUBROGATION. 


559 


right  to  be  subrogated  to  the  rights  and  remedies  of  the  owner 
against  the  defaulting  carrier.  Insurance  Co.  v.  Calebs,  20  N.  Y. 
173;  Piatt  V.  Railroad  Co.,  20  J.  &  S.  496,  affirmed  108  N.  Y.  358, 
15  N.  E.  Rep.  393;  Insurance  Co.  v.  Transportation  Co,  10  Biss. 
18,  affirmed  117  U.  S.  312,  6  Sup.  Ct.  Rep.  .750,  1176,  and  118 
U.  S.  210,  7  Sup.  Ct.  Rep.  25.  It  has  been  held,  {Jackson  Co.  v. 
Insurance  Co.,  139  Mass  508,  2  N.  E.  Rep.  103),  in  an  action  by  the 
owner  against  the  insurer  for  the  recovery  of  a  loss  covered  by  the 
policy,  and  caused  by  the  actionable  negligence  of  the  carrier,  that 
a  stipulation  between  the  owner  and  carrier,  giving  the  latter  the 
benefit  of  an  insurance  upon  the  goods,  is  not  a  defense  to  the 
insurer,  and  that  a  provision  in  the  policy  "  that  this  insurance  shall 
be  void  in  case  the  policy,  or  the  interest  insured  thereby,  shall  be 
sold,  assigned,  transferred,  or  pledged  without  the  consent  in  writ- 
ing of  the  insurer,"  is  not  violated  by  the  agreement  between  the 
owner  and  carrier  that  the  latter  should  have  the  benefit  of  any 
insurance  on  the  goods  carried. 

In  Inman  v.  Raihvay  Co  ,  129  U.  S.  128,  9  Sap.  Ct.  Rep.  249,  the 
defendant,  a  common  carrier,  transported  cotton,  under  a  bill  of 
lading  which  contained  a  stipulation  that  the  carrier  incurring  anv 
legal  liability  for  the  loss  of  the  cotton  "  shall  have  the  benefit  of 
any  insurance  which  may  have  been  effected  upon  or  on  account  of 
said  cotton."  The  owners  insured  the  cotton  under  policies  which 
contained  this  stipulation:  "And  any  act  of  the  insured  waiving  or 
transferring,  or  tending  to  defeat  or  decrease,  any  such  [the 
insurer's]  claim  against  the  carrier,  or  such  other  person  or  persons, 
whether  before  or  after  the  insurance  was  made  under  this  policy, 
shall  be  a  cancellation  of  the  liability  of  the  said  insurance  company 
for  or  on  account  of  the  risk  insured  for  which  loss  is  claimed.  In 
event  of  loss  the  assured  agrees  to  subrogate  to  the  insurers  ail 
their  claims  against  the  transporters  of  said  cotton,  not  exceeding 
the  amount  paid  by  said  insurers."  The  cotton  was  lost  by  the 
negligence  of  the  carrier.  The  insurers  adjusted  the  loss,  but  did 
not  pay  the  owner,  agreeing  with  him  that  he  should  sue  the  carrier 
without  prejudice  to  his  claims  under  the  policies,  and  that  interest 
should  be  allowed  upon  the  claim  as  adjusted  until  it  could  be  col- 
lected. The  assured  owner  sued  the  carrier,  which  defended  on  the 
ground  that  by  the  stipulation  in  the  bill  of  lading  it  was  entitled  to 
the  insurance  effected  on  the  cotton,  which  the  ov/ner  had  nullified 
by  accepting  a  policy  containing  the  stipulation  quoted.  It  was 
held  that  the  stipulation  in  the  policy  was  not  a  defense.  It  is 
unnecessary  to  determine  whether  the  reasons  given  for  the  judg- 
ment in  the  case  last  cited  can  be  harmonized  with  the  reasons  given 


560  SUBROGATION. 

for  the  judgments  in  the  previous  cases  hereinbefore  cited,  because 
none  of  the  cases  determine  the  precise  question  presented  in  the 
case  at  bar. 

The  plaintiffs  in  this  action  expressly  stipulated  that  they  would 
make  no  agreement,  nor  do  any  act,  whereby  their  right  of  action 
against  the  carrier  for  losing  or  injuring  the  leather  should  be 
released  or  cut  off,  and  that,  in  case  the  carrier  became  liable  to  the 
plaintiffs  for  losing  or  injuring  the  leather,  the  defendant,  the 
insurer,  on  paying  the  loss,  should  be  subrogated  to  their  right  of 
action  against  the  carrier.  By  the  contract  entered  into  between 
the  plaintiffs  and  the  carrier,  the  rights  stipulated  for  by  the  insurer 
have  been  wholly  nullified  and  cut  off,  which  defeats  the  plaintiffs' 
right  to  recover  on  the  policy.  Cars/airs  v.  Insurance  Co.,  18  Fed. 
Rep.  473. 

The  judgment  should  be  affirmed,  with  costs.  All  concur,  except 
Haight,  J.,  not  voting. 

Judgment  affirmed. 


4.  Lessor  and  Lessee. 

DARRELL  v.  TIBBITTS. 

5  Q.  B.  D.  560.  —  1880. 

Forbes  was  the  owner  of  a  house  in  Brighton;  he  demised  it  to 
certain  persons  named  Bonner  by  a  lease,  which  rendered  the  lessees 
bound  to  repair,  "  except  casualties  by  fire,  demolition  by  storm  or 
tempest  of  the  building  or  any  part  thereof,  or  destruction  by 
foreign  enemies."  Forbes  insured  the  house  in  the  Union  Societ)' 
(of  which  the  plaintiff  was  secretary),  by  a  policy  against  fire  cover- 
ing injury  by  explosions  of  gas.  In  1877  the  corporation  of  Brighton 
repaired  the  streets  by  a  steam  roller,  which  owing  to  its  weight 
damaged  a  pipe  and  caused  an  escape  of  gas  into  the  house  demised 
to  Bonner,  where  it  exploded  and  did  considerable  damage.  Forbes 
sold  the  house  and  the  policy  to  the  defendant,  and  after  some 
negotiation  the  Union  Society  paid  to  the  defendant  a  sum  of  750/. 
The  lessees  received  compensation  from  the  corporation  of  Brighton 
for  the  damage  done  to  the  house  by  the  explosion,  and  with  the  sum 
received  reinstated  the  house.  At  the  time  when  the  Union  Society 
paid  to  the  defendant  the  sum  of  750/.  they  were  unaware  that  by 
the  terms  of  the  lease  the  lessees  were  bound  to  make  good  injuries 
done  by  an  explosion  of  gas.  The  Union  Society,  upon  hearing 
that  the  house  had  been  reinstated  by  Bonner,  claimed  from  the 
defendant  the  sum  of  750/.,  and  upon  his  refusal  brought  the  pres- 


SUBROGATION.  561 

ent  action  in  the  name  of  the  plaintiff.  Lush,  J.,  gave  judgment 
for  the  defendant. 

The  plaintiff  appealed. 

Brett,  L.  J.  —  *  *  *  j^  seems  to  me,  according  to  the 
principle  of  North  British  and  ATercantile  Insurance  Co.  v.  London, 
Liverpool,  and  Globe  Insurance  Co..,  5  Ch.  Div.  569,  that  if  the  tenants 
had  not  repaired  the  damage,  and  had  declined  to  do  so,  the  insur- 
ance company  would  have  been  bound  to  pay  the  landlord  who  had 
insured  with  them,  but  would  ha^e  had  a  right  to  bring  in  his  name 
an  action  against  the  tenants,  and  recover  from  the  tenants  what 
they  had  paid  to  the  landlord;  in  other  words,  a  policy  of  fire  insur- 
ance is  a  contract  of  indemnity  similar  to  that  which  is  contained 
in  a  policy  of  marine  insurance.  That  case  seems  to  me  further  to 
shew  that  if  the  landlord  had  sued  the  tenants  before  he  received 
payment  from  the  insurance  company,  he  must  have  recovered  from 
them,  for  it  would  have  been  no  answer  by  the  tenants  that  the 
landlord  was  insured.  That  case  seems  to  me  also  to  decide  this, 
that  if  the  landlord  had  recovered  damages  from  the  tenants  equiv- 
alent to  the  injury  done  to  him  by  the  refusal  of  the  tenants  to 
repair,  he  could  not  afterwards  sue  the  insurance  company.  The 
landlord  was  paid  by  the  insurance  company  at  a  time  when  they 
could  not  resist  his  demand,  as  they  were  bound  by  their  contract 
to  pay.  Afterwards  the  corporation  of  Brighton,  by  whose  negli- 
gence the  mischief  happened,  paid  the  amjunt  of  damage  to  the 
defendant's  house,  and  this  amount  was  expended  in  making  good 
the  damage.  I  think,  however,  that  the  case  stands  in  the  same 
position  as  if  the  tenants  had  executed  the  repairs  with  their  own 
moneys. 

The  question  now  arises  whether  the  insurance  company  who  paid 
the  money  to  the  landlord  at  a  time  when  they  were  obliged  to  pay 
by  virtue  of  their  contract,  can  recover  it  back  because  the  tenants 
have  done  that  which  tney  could  not  avoid  doing;  if  they  had  not 
repaired,  they  must  have  paid  damages  to  the  landlord.  If  the 
company  cannot  recover  the  money  back,  it  follows  that  the  land- 
lord will  have  the  whole  extent  of  his  loss  as  to  the  building  made 
good  by  the  tenants,  and  will  also  have  the  whole  amount  of  the  loss 
paid  by  the  insurance  company.  If  that  is  so,  the  whole  doctrine 
of  indemnity  would  be  done  away  with;  the  landlord  would  be  not 
merely  indemnified,  he  would  be  paid  twice  over.  A  technical  diffi- 
culty arises  in  my  mind  as  to  the  ground  upon  which  the  landlord 
can  be  held  liable  in  this  action,  but  it  is  a  difficulty  which  ought 
to  be  surmounted.  I  do  not  think  that  the  money  can  be  recov- 
ered back  upon  the  ground  that  the  consideration  for  the  payment  of 

.     LAW   OF   INSURANCE  —  '^6 


562  SUBROGATION. 

the  money  has  wholly  failed;  because  the  premium  upon  the  policy  is 
part  of  the  consideration  and,  no  one  supposes  that  the  premium  is 
to  be  returned.  But  it  seems  to  me  that  according  to  all  rules  of 
law  we  have  a  right  to  imply  a  promise  on  the  part  of  the  landlord 
to  the  insurance  company  at  the  time  of  payment  by  them,  that  if 
the  loss  should  be  afterwards  made  good  by  the  tenants,  he  would 
repay  the  money  which  he  received  from  the  insurance  company. 
I  think  that  the  landlord  is  liable  on  another  ground  also.  The 
doctrine  is  well  established  that  where  something  is  insured  against 
loss  either  in  a  marine  or  a  fire  policy,  after  the  assured  has  been 
paid  by  the  insurers  for  the  loss,  the  insurers  are  put  into  the  place 
of  the  assured  with  regard  to  every  right  given  to  him  by  the  law 
respecting  the  subject-matter  insured,  and  with  regard  to  every 
contract  which  touches  the  subject-matter  insured,  and  which  con- 
tract is  affected  by  the  loss  or  the  safety  of  the  subject-matter 
insured  by  reason  of  the  peril  insured  against.  So  that  immediately 
after  the  insurance  company  had  paid  the  landlord,  they  were  put 
into  his  place  with  regard  to  the  contract  to  rebuild,  which  was  a 
contract  respecting  the  subject-matter  insured,  that  is,  the  build- 
ing, and  which  contract  was  affected  by  the  safety,  or  the  loss  of 
that  building  by  reason  of  the  explosion,  which  was  a  peril  insured 
against,  and  therefore  they  are  to  be  subrogated  or  to  be  put  into 
the  place  of  the  landlord  with  regard  to  his  rights;  they  might  have 
sued  in  his  name  the  tenants  if  the  latter  had  not  repaired,  and  when 
the  tenants  have  repaired,  the  insurance  company  are  to  have  the 
benefit  of  those  repairs. 

Judgment  must  be  entered  for  the  plaintiff. 

Judgment  reversed  and  entered  for  the  plaintiff  for  750/. 

[Concurring  opinions  were  also  rendered  by  Cotton  and  Thesi- 
GER,  L.  JJ.] 


WEST  OF  ENGLAND  FIRE  INS.  CO.  v.  ISAACS. 

[1897]  I  Q.  B.  226.  —  i8q6. 

Appeal  from  the  judgment  of  Collins,  J.,  reported  [1896]  2  Q.  B. 

377- 

The  plaintiffs,  an  insurance  company,  paid  to  the  defendant  a 
sum  of  100/.  in  respect  to  a  claim  under  a  policy  of  insurance  aris- 
ing under  the  foUo.ving  circumstances  Certain  premises  were 
demised  for  a  term  to  expire  in  December,  1894,  the  lease  containing 
covenants  by  the  lessee  to  repair  and  leave  in  repair,  and  also  to  in- 
sure in  the  Royal  Exchange  Assurance  Corporation  in  the  joint  names 


SUBROGATION.  563 

of  the  lessors  and  lessee.  Under  this  lease  one  Bennett  became 
lessee  and  effected  a  policy  on  the  premises  in  the  above-mentioned 
office  in  the  joint  names  of  himself  and  the  lessors.  He  then  sub- 
let to  the  defendant  a  warehouse,  which  was  part  of  the  premises, 
for  the  residue  of  the  term  less  ten  days.  The  sub-lease  contained 
covenants  oa  the  part  of  the  defendant  to  repair  and  leave  in  repair, 
and  a  covenant  by  Bennett,  the  lessor,  to  insure  the  premises,  and 
to  lay  out  the  moneys  received  under  any  insurance  policy  in  mak- 
ing good  damage  by  fire,  with  a  proviso  that  if  such  moneys  proved 
insufficient  the  defendant  was  to  remain  liable,  under  his  covenant 
to  repair,  to  make  good  the  deficiency.  The  defendant  effected,  in 
his  own  name,  an  insurance  against  fire  with  the  plaintiffs  upon  the 
warehouse  demised  to  him  by  the  sub-lease.  During  the  existence 
of  the  sub-lease  a  fire  happened  by  which  the  warehouse  was  dam- 
aged. Bennett  had  died  before  the  fire  took  place,  and  subse- 
quently to  that  event  Bennett's  interest  became  vested  by  order 
made  in  the  Chancery  Division  of  the  High  Court  in  one  Jones. 
Notice  to  repair,  accompanied  by  a  specification  or  schedule  of 
dilapidations,  was  given  under  the  original  lease  by  the  lessors  to 
Jones,  who  in  turn  gave  notice  to  repair,  with  a  schedule  of  dilapi- 
dations, to  the  defendant.  Jones  died  shortly  afterwards,  and  his 
executors  demanded  payment  from  the  Royal  Exchange  Office  of 
too/.,  the  amount  at  which  the  fire  damage  to  the  warehouse  had 
been  agreed  by  both  insurance  offices  and  the  defendant.  The 
plaintiffs  were  sued  by  the  defendant  upon  their  policy,  and  paid 
him  100/.,  the  agreed  amount  of  the  damage  to  the  warehouse.  At 
that  time  the  plaintiffs  admittedly  knew  of  the  existence  of  the 
Royal  Exchange  policy. 

Subsequently  to  the  above  proceedings  and  in  December,  1894, 
the  lease  expired.  Later  on  the  original  lessors  brought  an  action 
against  Jones'  executors  to  recover  damages  for  breaches  of  the 
covenant  to  repair  contained  in  the  original  lease,  and  thereupon 
Jones'  executors  brought  a  similar  action  against  the  defendant  for 
a  breach  of  the  covenants  in  the  sub-lease.  The  first  mentioned 
action  was  settled  by  payment  of  a  sum  of  250/.,  and  the  action  by 
Jones*  executors  against  the  defendant  was  settled  by  his  paying 
140/.  to  Jones'  executors,  who  gave  him  a  receipt  for  all  claims 
under  the  schedule  of  dilapidations,  which  included  damage  by  fire. 
The  defendant  at  the  same  time  undertook  not  to  bring  any  action 
against  Jones'  executors  for  breaches  of  covenant  contained  in  the 
sub-lease.  Jones'  executors  pressed  their  claim  against  the  Royal 
Exchange  office  under  their  policy,  and  the  company  paid  100/.  in 
discharge  of  their  liability. 


564  SUBROGATION. 

This  action  was  brought  by  the  plaintiffs  to  recover  100/.  from 
the  defendant,  upon  the  ground  that  on  settling  with  Jones'  execu- 
tors the  defendant  had  had  the  benefit  of  the  payment  made  under 
the  Royal  Exchange  policy,  or  of  the  covenant  in  the  sub-lease  on 
the  part  of  the  predecessors  in  title  of  Jones'  executors,  or,  alterna- 
tively, that  the  defendant  was  bound  to  make  good  to  the  plaintiffs 
the  full  value  of  the  rights  against  his  lessor  which,  for  his  own 
reasons,  he  has  renounced,  to  which  rights,  but  for  such  renuncia- 
tion, the  plaintiffs  would  have  been  entitled  to  be  subrogated. 

The  learned  judge  gave  judgment  in  favor  of  the  plaintiffs.  [1896] 
2  Q.  B.  377.     The  defendant  appealed. 

Channell,  Q.  C. ,  and  Edicard  Pollock,  for  the  defendant.  The 
defendant  gave  up  no  right,  or  if  he  did  give  up  any  right  it  was 
valueless.  When  Jones'  executors  sued  the  defendant  both  the  terms 
under  the  lease  and  the  sub-lease  had  come  to  an  end,  and  the 
executors  could  not  reinstate  the  premises.  Consequently,  an 
action  by  the  defendant  against  them  could  not  have  resulted 
in  more  than  nominal  damages.  In  Darrell  v.  Tibbitts,  (1880)  5  Q. 
B.  D.  560,  Cotton,  L.  J.,  says:  "  If  the  company  had  known  of 
the  covenants  in  the  lease,  and  of  the  actual  position  of  the  parties, 
it  might  have  been  said  that  they  paid  without  requiring  the  cove- 
nant to  be  enforced,  and  therefore  had  lost  their  remedy."  Here 
it  is  clear  that  the  plaintiffs  knew  of  the  covenants  in  the  sub-lease, 
and  by  paying  with  that  knowledge  they  lost  their  right  to  take 
advantage  of  these  covenants.  The  law  laid  down  by  the  learned 
judge  is  not  disputed,  but  only  its  applicability  to  the  facts. 

Cohen,  Q.  C,  and  Wood  Hill,  for  the  plaintiffs.  The  full  loss  has 
been  paid  by  each  of  two  insurers.  One  of  them,  the  Royal 
Exchange  Office,  could  not  avoid  paying,  and,  consequently,  the 
other,  the  plaintiffs,  are  exempt,  and  can  recover  back  the  money 
tney  have  paid  to  the  defendant.  The  defendant  got  the  benefit  of 
giving  up  the  claim  under  the  sub-lease,  because  by  agreeing  to  do 
so  he  paid  less  than  he  would  otherwise  have  been  obliged  to  pay. 
That  benefit  is  properly  measured  by  the  agreed  amount  of  the 
damage  by  fire  —  that  is,  100/. 

[Thej^  cited  North  British  and  Mercantile  Insurance  Co.  v.  London, 
Liverpool,  and  Globe  Insurance  Co.,  {\'^li)  5  Ch.  D.  569,  and  Castellain 
V.  Preston,  (1883)  11  Q.  B.  D.  380.] 

Channell,  Q.  C,  in  reply.  The  payment  of  100/.  by  the  plaintiffs 
to  the  defendant  covered  his  liability  to  his  lessors,  and  therefore 
covered  their  loss,  so  that  they  were  not  entitled  to  call  on  the  Royal 
Exchange  Office  to  pay  a'lything,  an  1  their  having  paid  cannot  affect 
the  rights  of  the  plaintitfs  and  the  defendant  between  themselves. 


SUBROGATION.  565 

Lord  Esher,  M.  R.  —  In  this  case  there  were  some  premises 
insured  against  fire  in  two  insurance  offices,  and  there  has  been  a 
fire,  and  in  respect  of  that  each  of  the  offices  has  paid  100/.  The 
question  is  whether  that  state  of  things  can  stand.  For  the 
plaintiffs  it  is  said  that  the  cases  show  that  the  situation  must 
be  got  rid  of,  and  I  think  it  can  be  by  the  application  of  well  known 
principles. 

The  action  is  by  one  of  the  insurance  companies,  and  the  plain- 
tiffs do  not  say  that  they  were  not  bound  to  pay  on  their  contract; 
but  thej'  say  that  on  their  doing  so  any  remedy  which  the  defendant 
has  against  anybody  in  respect  of  the  damage  is  subrogated  to  them, 
and  that  the  defendant  had  no  right  to  deal  with  such  a  claim  to 
the  prejudice  of  the  plaintiffs.  That  proposition  is  not  disputed  on 
behalf  of  the  defendant.  Did  he,  then,  deal  with  any  rights  he  had 
against  third  parties?  He  had  a  right  against  the  person  who  was 
in  the  position  of  being  the  lessor  at  that  time  arising  out  of  a 
covenant  in  the  lease  that  the  lessor  would  insure  the  premises 
against  loss  by  fire,  and  expend  any  money  received  under  the 
insurance  as  far  as  might  be  necessary  in  restoring  the  damage  done 
by  the  fire.  There  was  some  suggestion  that  there  was  no  one 
whom  the  defendant  could  have  sued  on  that  covenant;  but  the 
position  at  the  time  of  the  fire  was  that  Jones  had  taken  upon  him- 
self the  fulfillment  of  the  covenant,  and  that  the  defendant  had 
agreed  to  be  tenant  upon  these  terms.  The  lessor  was  bound  to 
endeavor  to  recover  from  the  Royal  Insurance  Company,  and  to 
spend  any  money  recovered  in  putting  the  premises  to  rights.  If 
that  had  been  done  before  the  present  plaintiffs  had  been  called  on 
to  pay,  as  they  were  only  bound  to  indemnify  the  defendant,  they 
would  not  have  had  to  pay  anything.  They  now  say  that,  having 
paid  under  their  policy,  they  are  entitled  to  the  right  which  the 
defendant  had  to  insist  that  Jones  should  expend  the  money  he  had 
received  in  repairing  the  damage  done  by  the  fire,  and  that  they 
ought  to  be  in  a  position  to  force  Jones  to  do  this,  or  to  recover 
damages  from  him  for  his  breach  of  covenant  in  not  doing  it. 
Inasmuch  as  the  damage  by  the  fire  was  agreed  at  100/.,  they  say 
that  would  be  the  amount  of  damages  that  they  would  have  been 
entitled  to  recover  from  Jones.  The  defendant  has  given  up  this 
right  of  action  against  Jones,  so  that  the  plaintiffs  can  never  recover 
that  amount,  and  the  course  taken  by  the  defendant  has  damaged 
the  plaintiffs  to  that  extent.  Ttie  plaintiffs  claim  that  this  gives 
them  a  right  to  recover  that  amount  in  their  action.  This  was  the 
view  taken  by  the  learned  judge;  and  it  seems  to  me  that  it  is  per- 
fectly right,  and  in  accordance  with  the  law  of  insurance.     I  think, 


566  SUBROGATION. 

therefore,  that  the  plaintiffs  were  entitled  to  succeed,  and  that  the 
appeal  should  be  dismissed. 

Lopes,  L.  J.  —  I  am  of  the  same  opinion. 

RiGBY,  L.  J.  —  1  agree.  I  wish  to  say  a  few  words  about  the 
position  of  the  lessor  and  the  lessee.  Under  the  sub-lease  there 
was  a  general  covenant  to  repair  and  to  yield  up  in  repair;  but  a 
special  provision  was  made,  for  the  case  of  damage  by  fire,  that  the 
lessor  should  insure  against  such  damage  and  should  lay  out  all 
moneys  received  in  respect  to  such  insurance  in  rebuilding  or 
reinstating  the  premises  destroyed  or  damaged.  Then  came  a 
proviso  that  the  lessee  should  remain  liable  to  make  good  any  dam- 
age which  the  money  received  by  virtue  of  any  such  insurance 
should  be  inadequate  to  repair.  The  liability  of  the  lessee  to  the 
lessor  was  to  make  good  any  damage  that  the  loo/.,  the  agreed 
amount  in  this  case,  would  not  cover,  and  he  was  entitled  to  insist 
on  the  loo/.  being  expended  on  the  repairs.  He  has  so  dealt  with 
the  lessor  that  no  one  can  now  get  the  loo/.,  for  he  has  already  got 
the  full  benefit  of  it.  The  substance  of  the  thing  is  that  he  paid 
140/.  without  requiring  that  diminution  of  liability  to  which  he  was 
entitled.  He  may  have  got  the  full  100/.  or  more;  but  at  any  rate, 
he  so  dealt  with  the  insurance  that  the  plaintiffs  cannot  obtain  it 
from  the  lessor,  and  they  are  entitled  to  recover  it  in  this  action. 

Appeal  dismissed. 


5.    MORTGAGOU    AND    MORTGAGEE.  — LlENHOLDER. 

HONORE  7:  LAMAR  FIRE  INSURANCE  CO. 

51  Ills.  409.  —  1869. 

The  question  presented  in  this  case  arises  on  this  state  of 
facts:  Honore,  the  appellant,  having  executed  his  note  to  Rutter, 
Endicott  &  Whitehouse,  for  $2,146.50,  deposited  with  them,  as 
collateral  security,  seventy-four  barrels  of  whiskey.  They  effected 
an  insurance  on  the  whiskey,  at  their  own  expense,  in  their  own 
name,  and  without  the  authority  or  knowledge  of  Honore.  The 
whiskey  was  subsequently  destroyed  by  fire,  and  the  insurance 
company  paid  the  policy  to  Rutter,  Endicott  &  Whitehouse,  first 
requiring  an  assignment  of  the  note,  to  secure  which  the  whiskey 
was  deposited. 

Mr.  Justice  Lawrence. — The  appellant  executed  his  note  to 
Rutter,  Endicott  &  Whitehouse,  for  $2,146.50,  and  deposited  with 
them,  as  collateral  security,  seventy-four  barrels  of  whiskey.  They 
effected  an  insurance  on  the  whiskey  in  the  Lamar  Fire  Insurance 


SUBROGATION.  567 

Company,"  appellees  herein,  at  their  own  expense,  and  in  their  own 
name,  and  without  the  authority,  or  even  knowledge,  of  appellant. 
The  whiskey  was  subsequently  destroyed  by  fire,  and  the  company 
paid  the  policy  to  Rutter,  Endicott  &  Whitehouse,  first  requiring 
an  assignment  of  appellant's  note.  The  note  was  accompanied  by 
a  power  of  attorney  to  confess  a  judgment,  and  the  company  havmg 
caused  a  judgment  to  be  confessed,  the  appellant  filed  a  bill  to 
enjoin  its  collection.  On  the  hearing  the  Circuit  Court  dismissed 
the  bill. 

If  the  insurance  had  been  effected  at  the  request  or  by  the 
authority  of  appellant,  or  at  his  expense,  or  under  circumstances 
that  would  make  him  chargeable  with  the  premium,  vve  should  have 
no  difficulty  in  holding  him  entitled  to  its  benefits,  by  applying  the 
money  paid  in  extinguishment  of  so  much  of  his  debt.  But  none  of 
these  circumstances  are  presented  by  this  record.  The  appellant 
prosecutes  his  appeal  merely  upon  the  ground  that,  in  all  cases  where 
a  mortgagee  insures  the  mortgaged  property,  the  mortgagor  is 
entitled  to  the  benefits  of  the  policy. 

This  position  is  maintainable  neither  upon  principle  nor  authority. 
The  contract  of  insurance,  it  has  been  often  remarked,  is  one  of 
indemnity  merely.  Any  person  having  an  interest  in  property  may, 
through  an  insurance,  indemnify  himself  against  loss  by  fire.  Mort- 
gagor and  mortgagee  have  each  an  insurable  interest.  The  interest 
of  both  may  be  covered  in  one  policy,  or  each  may  take  out  a  sep- 
arate policy.  In  this  case  the  mortgagees  insured  at  their  own 
cost,  without  privity  with  the  mortgagor  and  without  his  knowl- 
edge, and  when  the  company  paid  the  debt  due  them  from  the  mort- 
gagor, it  indemnified  them  against  loss  and  was  entitled  to  be 
subrogated  to  their  claim.  The  mortgagor,  having  had  no  connec- 
tion with  the  insurance,  cannot  claim  its  benefit.  As  the  premium 
was  not  paid  by  him  or  chargeable  to  him,  as  he  was  not  aware  even 
that  an  insurance  had  been  effected  until  after  the  fire,  it  is  difficult 
to  see  how  such  insurance,  even  when  paid,  can  affect  his  liability 
upon  his  note.  Even  the  case  of  King  v.  The  State  Mutual  Fire 
Insurance  Co.,  7  Cush.  10,  on  which  the  appellant  chiefly  relies, 
holds  that  in  such  cases  the  liability  of  the  mortgagor  upon  his  note 
remains  the  same,  but  that  the  mortgagee  may  recover  it  for  his 
own  use,  although  already  paid  by  the  insurance  company.  Cer- 
tainly it  is  much  more  consonant  to  every  principle  of  equity  to  say 
that  the  debt  may  be  recovered  for  the  benefit  of  the  insurance 
company,  than  that  the  mortgagee  should  be  twice  paid.  The 
doctrine  of  that  case  would  sanction  wager  policies,  and  furnish  a 
dangerous  temptation  to  incendiarism. 


$68  SUBROGATION. 

That  the  insurance  company  is  entitled  to  be  subrogated  to  the 
claims  of  the  mortgagee,  in  such  a  case  as  the  present,  is  held  in 
Carpenter  v.  Providence  Washington  Ins.  Co.^  i6  Pet.  501,  Sussex  Ins. 
Co.  v.  Woodruff.,  2  Dutcher,  555,  and  ^^tna  Fire  Ins.  Co.  v.  Tyler,  16 
Wend.  397.  In  concord.  Am.  Ins.  Co.  v.  Woodbury,  45  Mc.  452, 
where  the  assured  had  voluntarily  assigned  his  claim  to  the  insur- 
ance company  upon  payment  by  it,  as  in  the  present  case,  the 
court  held  the  company  entitled  to  recover.  The  question  of  the 
right  to  subrogation  against  the  will  of  the  mortgagee,  was  not 
presented  in  that  case,  nor  is  it  in  this,  because  the  assignment 
was  made  by  the  mortgagee  upon  payment  of  the  loss.  The  only 
question  strictly  presented  here  is,  Whether  the  mortgagor  has  been 
discharged  from  his  debt  by  the  payment  of  the  mortgagee's  policy, 
and  on  this  point  there  is  no  disagreement  among  the  authorities. 
The  debt  is  still  in  existence,  and  the  strong  equity  of  the  insur- 
ance company  has  been  united  to  the  legal  title. 

The  Circuit  Court  committed  no  error  in  dismissing  the  bill. 

Decree  affirmed. 


NELSON  ET  AL.  V.  BOUND  BROOK  MUTUAL  FIRE  INS.  CO. 

43  N.  J.  Eq.  256.  —  1887. 

Knapp,  J.  —  Mrs.  Nelson,  the  appellant,  took  out  from  the 
respondent  company  a  policy  of  insurance  against  loss  by  fire  on 
certain  buildings  on  the  farm  owned  and  occupied  by  her  at  the 
time.  The  buildings  were  burned,  and  the  company  paid  to  her 
the  amount  of  the  loss.  Before  the  destruction  of  the  buildings, 
the  appellant,  Mrs.  Nelson,  by  a  verbal  agreement  with  her  two 
sons,  bargained  for  a  sale  to  them  of  the  entire  property  for  $3,000, 
one-half  to  be  paid  in  cash  or  its  equivalent,  the  balance  to  be 
secured  to  her  by  bond  and  mortgage  on  the  property.  It  was 
further  stipulated  between  them  that,  upon  the  execution  of  the 
conveyance,  the  vendees  should  have  an  assignment  of  the  policy  to 
them  as  owners,  and  re-assign  it  to  her  as  collateral  security  upon 
her  mortgage.  In  the  interim,  the  policy  should  remain  for  their 
joint  protection  on  the  building,  the  vendees  engaging  to  pay  all 
subsequent  assessments  on  the  policy.  No  time  was  appointed  for 
concluding  the  transaction,  but  the  parties  chancing  to  meet  at  the 
office  of  a  conveyancer  haJ  the  deed  and  mortgage  drawn.  The 
deed  was  signed  and  acknowledged  by  the  vendor,  and  left  by  the 
parties  with  the  county  clerk  to  be  recorded.  The  mortgage  was 
signed   and    acknowledged   by   the  vendees  and   the  wife  of   one  of 


SUBROGATION.  569 

them  who  was  present,  and  its  custody  given  to  the  vendor  to  hold 
until  the  absent  v^'ife  could  be  brought  to  sign  it,  when  the  balance 
of  the  purchase-money  was  to  be  adjusted  and  the  insurance  as 
arranged  for  effected  in  completion  of  the  bargain.  Before  the 
parties  met  again  after  the  execution  of  the  papers  the  fire  occurred. 
Upon  paying  the  insurance  money  by  the  company,  an  assignment 
of  this  mortgage  to  it  was  formally  demanded  of  Mrs  Nelson.  She 
refused  to  assign  it,  and  the  respondents  filed  a  bill  praying  subro- 
gation to  her  rights  under  the  mortgage,  and  that  she  be  decreed  to 
assign  it  to  the  company.  The  court  below  so  decreed,  and  ir:>ni 
that  decree  the  defendants  below  appealed. 

The  policy  which  Mrs.  Nelson  held  was  the  ordinary  one  insuring 
her  as  owner  against  loss  by  fire.  It  expressed  no  undertaking  on 
her  part  to  assign  to  the  underwriters,  m  any  event,  the  whole  or 
any  part  of  the  property  insured,  or  any  interest  in  or  security  which 
she  might  hold  against  it.  The  respondent's  right  to  such  decree, 
not  resting  upon  express  contract,  must  be  based  upon  special  cir- 
cumstances such  as  give  it  just  claim  to  that  advantage.  To  decree 
it  when  not  founded  in  conventional  right  is  the  ministration  of  a 
pure  equity,  and  one  claiming  it  must  show  that  it  is  ilue  to  him, 
and  is  not  unjust  or  inequitable  to  other  parties  in  interest.  Xgr- 
nochan  v.  Boiucry  Ins.  Co.,  17  N.  Y.  428.  The  respondent  does  not 
rely  upon  the  terms  of  its  contract  to  support  its  present  claim 
but  bases  it  upon  changes  in  the  relation  of  the  assured  toward  the 
property  through  the  contract  of  sale,  which  it  alleges  create 
other  rights  and  duties  between  the  insurer  and  the  insured,  out  of 
which  comes  this  resulting  equity.  It  is  said  that  through  the  sale 
to  her  sons  she  ceased  to  be  owner  and  became  mortgagee  for  part 
of  the  consideration,  thereby  cutting  down  her  insurable  interest 
as  owner  to  that  of  a  lien  for  the  payment  of  her  debt,  and  reducing 
the  obligation  of  the  insurer  from  an  undertaking  of  absolute  indem- 
nity against  loss  on  the  property  to  a  special  indemnity  against  loss 
on  her  mortgage  debt;  that  as  an  insurer  of  the  interest  of  a  mort- 
gagee, the  right  to  subrogation  to  the  security  arises  on  payment  of 
the  debt. 

Conceding  that  a  mortgagee,  who,  on  his  own  behalf  and  for  his 
own  protection  solely,  takes  out  a  policy  to  secure  his  mortgage 
debt,  may  be  called  upon  to  assign  his  security  to  the  insurer  who 
pays  his  debt  on  the  occurrence  of  a  loss,  it  becomes  an  essential 
fact  for  the  complainant  to  establish  in  maintenance  of  its  theory 
that  Mrs.  Nelson  had  changed  her  character  as  owner  to  that  of 
mortgagee.  If  the  treaty  between  herself  and  her  sons  for  the  con- 
veyance of  the  property  was  at  the  time  of  the  loss  by  fire  m  an 


570  SUBROGATION. 

incomplete  and  inchoate  state,  a  mere  executory  contract,  no  steps 
in  its  progress  toward  final  execution  can  be  seized  hold  of  to 
determine  her  real  shrtiis.  She  remained,  in  legal  contemplation, 
the  owner  until  within  the  intention  of  the  parties  the  contract 
became  executed  in  all  its  essential  terms.  Until  then,  loss  on  the 
property  in  risk  was  her  loss,  and  under  the  terms  of  the  policy  the 
company  was  bouiid  to  pay  in  discharge  of  its  contract  obligation. 

The  parties  to  the  contract  of  sale  appear  to  have  been  fully 
agreed  upon  the  terms  of  their  bargain.  Those  terms  have  already 
been  recited  in  sufficient  detail  for  our  purposes,  and  they  meet  with 
no  substantial  contradiction  in  the  evidence.  The  transaction  was 
intended  by  the  parties  to  be  an  entire  one,  and  in  their  minds  was 
not  regarded  as  an  executed  agreement  when  the  deed  and  mort- 
gage were  exchanged,  nor  was  it  to  become  so  until  the  execution 
of  the  mortgage  was  perfected  as  stipulated  for,  the  balance  of  the 
consideration-money  paid  and  adjusted,  and  the  building  protected 
by  insurance  for  the  interest  and  benefit  of  both.  The  execution 
of  the  papers  needed  in  the  transfer  of  title  was  for  the  convenience 
of  the  parties  who  lived  at  a  distance  from  each  other;  and  it  was 
between  those  whose  relations  suggest  trust  aad  confidence.  Whit 
was  done  respecting  the  conveyance  was  not  regarded  by  the  parties 
as  the  conclusion  of  their  bargain,  nor  was  the  bargain  considered 
by  them  as  attaining  completion  until  the  balance  of  the  considera- 
tion should  be  paid  and  insurance  effected.  I  think  it  is  clear  that 
at  the  time  of  the  fire  the  treaty  for  the  sale  of  the  property,  which 
on  its  execution  would  change  Mrs.  Nelson's  rights  as  owner  to 
those  of  mortgagee  was  in  Jieri,  and  her  ownership  remained.  This 
conclusion  is  not  disturbed  by  the  suggestion  of  counsel  that  the 
appellant,  Mrs.  Nelson,  has  a  vendor's  lien  for  the  balance  of  the 
purchase-money  which  she  can  enforce  in  equity  against  her  ven- 
dees. In  the  contract  to  sell  she  did  not  contemplate  any  such  reli- 
ance for  payment.  She  bargained  for  cash  and  the  cancellation  of 
notes  held  against  her,  which  were  the  equivalent  of  cash;  and  this 
is  a  very  different  thing  from  a  vendor's  lien,  if  that  be  her  right. 
This,  instead  of  showing  an  executed  agreement,  tenders  to  her  a 
means  through  litigation  with  her  vendees  for  the  enforcement  of 
unperformed  stipulations. 

But  if  it  be  conceded  that  the  transfer  was  complete,  so  as  to 
vest  the  title  in  the  grantees  in  the  deed,  and  to  convert  her  interest 
in  the  lands  to  that  of  mortgagee,  the  case  is  not  one  in  which  sub- 
rogation can  be  claimed.  It  is  not  a  case  where  the  insurer  reserves 
in  the  provisions  of  his  policy  the  right  to  an  assignment  of  the 
mortgage  upon  payment  of  a  loss,  as  in  Foster  v.   Van  Reed,  70  N. 


SUBROGATION.  57 1 

Y.  19.  There  the  right  resting  upon  express  contract  cannot  be 
defeated  or  impaired  by  any  private  arrangement  between  the 
assured  and  the  owner  of  the  equity  of  redemption.  Nor  is  it  of 
that  class  of  cases  where  a  mortgagee  insures  his  mortgage  interest 
"  at  his  own  expense,  upon  his  own  motion,  and  for  his  sole  benefit." 
In  such  cases,  says  Judge  Folger,  in  Excelsior  Ins.  Co.  v.  Royal  Ins. 
Co.,  55  N.  Y.  343,  359,  "  the  insurer,  in  making  compensation,  is 
entitled  to  an  assignment  of  the  rights  of  the  assured."  The 
remarks  made  by  the  learned  chancellor  in  Sussex  Ins.  Co.  v.  JVood- 
riiff,  2  Dutch.  541,  were  in  respect  to  insurance  of  a  like  interest  by 
the  mortgagee  without  the  knowledge  or  concurrence  of  the  mort- 
gagor. Under  a  contract  of  insurance  made  by  a  mortgagee, 
entirely  on  his  own  behalf  and  at  his  own  expense,  for  indem- 
nity against  loss  by  destruction  of  the  pledge,  the  owner  of  the 
equity  of  redemption  can  have  no  interest,  and  payment  of  the  loss 
does  not  go  in  satisfaction  of  the  debt.  Subrogation  can  in  such 
case  harm  no  one.  And  without  it  the  mortgagee  might  collect  his 
debt  twice.  The  right  does  not  rest  on  the  relation  of  suretyship. 
Mr.  Justice  Bradley  says,  "  Where  a  creditor  effects  insurance  on 
property  mortgaged  or  pledged  to  him  as  security  for  the  payment 
of  his  debt,  the  insurers  do  not  become  sureties  of  the  debt,  nor  do 
they  acquire  all  the  rights  of  sureties.  Tliey  are  insurers  of  a  par- 
ticular building  only."  Insurance  Co.  v.  Stinson,  103  U.  S  25.  If 
such  were  the  true  character  of  the  insurer,  it  would  place  serious 
impediments  in  the  way  of  contracts  between  mortgagor  and  mort- 
gagee, in  respect  to  insurance  of  the  mortgaged  premises,  which 
are  held  to  be  entirely  legitimate.  The  ordinary  insurance  clause 
in  mortgages  may  be  mentioned  as  an  instance.  A  more  reason- 
able ground  for  subrogation  in  these  cases  lies  in  the  fact  that  insur- 
ance by  the  mortgagee,  such  as  gives  the  debtor  no  benefit  of  money 
recovered  on  a  loss,  would,  without  subrogation,  convert  what  is 
designed  as  a  contract  of  indemnity  into  a  wager  policy.  The 
mortgagee  could  demand  payment  of  the  loss  to  the  extent  of  his 
mortgage  without  reducing  the  mortgage  debt.  Public  policy  con- 
demns such  contracts. 

But  there  is  neither  reason  nor  good  policy  in  compelling  a  mort- 
gagee to  assign  his  security  where,  through  an  arrangement  between 
the  mortgagor  and  mortgagee,  insurance  on  the  mortgaged  premises 
is  effected  for  their  common  benefit,  although  the  policy  be  taken 
in  the  name  of  the  mortgagee.  Where  a  policy  is  so  taken  out, 
under  the  insurance  clause  in  a  mortgage,  payment  of  a  loss  to 
the  mortgagee  inures  to  the  benefit  of  the  mortgagor,  and  it  is  imma- 
terial under  such  stipulation  in  whose  name  the  policy  be  procured. 


57J  SUBROGATION. 

ll\iii/i^  V.  Lodfr,  53  N.  Y.  5S1,  and  cases  cited.  A  policy  effected 
under  such  an  agreement,  in  the  name  of  the  mortgagee,  to  secure 
the  mortgaged  premises  against  loss  by  fire  will  protect  the  mort- 
gagor, and  payment  to  the  mortgagee,  pro  tanto,  discharges  the 
debt.  Such  an  agreement  between  the  mortgagor  and  mortgagee 
is  not  regarded  as  any  infringement  upon  the  rights  of  the  under- 
writers. The  mortgagee  becomes  bound  to  give  the  credit  to  his 
mortgage  debtor.  His  right  is  not  to  withhold  it,  and  subrogation 
IS  only  to  such  rights  as  he  has.  In  Sheldon  on  Sub.,  §  235,  it  is 
said:  "  If  the  mortgagee  has  procured  the  insurance,  though  in  his 
own  name,  at  the  request  and  expense  and  for  the  benefit  of  the 
mortgagor,  as  well  as  for  his  own  protection,  though  this  is  by  a 
parol  agreement  unknown  to  the  insurers,  the  mortgagor  will  have 
the  right,  in  case  of  loss,  to  have  the  avails  of  the  policy  applied  for 
his  relief  towards  the  discharge  of  his  indebtedness."  This  state- 
ment of  the  rule  is  well  supported  by  numerous  cases  cited  by  the 
author.  Kemochan  v.  Bowery  Ins.  Co.,  17  N.  Y.  428;  Hay  v.  Sfar 
Ins.  Co.,  77  N.  Y.  235,  and  Clinton  v.  Hope  Ins.  Co.,  45  N.  Y.  454, 
fully  support  the  rule  as  stated  in  the  text.  In  Clinton  v.  Hope  Ins. 
Co  ,  just  cited,  it  was  applied  to  a  state  of  facts  in  close  similarity 
with  the  present  case.  The  owner  of  the  property  had  taken  out  a 
policy  on  buildings  and  personalty  contained  therein,  and  while  it 
was  running  agreed  to  convey  the  property  to  a  vendee,  who  paid 
part  of  the  purchase-money.  The  vendor  agreed  to  hold  the  policy 
for  their  mutual  benefit,  the  vendee  agreeing  to  return  the  vendor 
the  unearned  portion  of  the  premium  on  the  policy.  Tne  case,  in 
one  of  its  aspects,  was  considered  by  the  court  in  the  light  jf  an 
executed  sale,  and  the  court  denied  the  right  of  the  insurer  to  sub- 
rogation to  the  vendor's  claim  for  balance  of  purchase-money, 
because  of  the  agreement  in  the  contract  of  sale  to  hold  the  policy 
for  their  mutual  benefit.  The  court  say:  "  If,  as  between  the  par- 
ties to  the  contract  of  sale,  the  vendee  was  entitled  to  the  benefit 
of  the  insurance  moneys  in  case  of  loss,  the  defendant,  the  com- 
pany, can  assert  no  equity  in  hostility  to  that  arrangement.  The 
equity  of  the  defendant  is  the  equity  of  the  vendors,  and  an  arrange- 
ment between  the  vendors  and  vendee  in  respect  to  the  application 
of  the  proceeds  of  the  insurance  did  not  violate  any  contract  between 
the  insurer  and  the  insured.  The  defendant,  on  payment  of  the 
indemnity  promised,  simply  performs  his  contract."  The  rule  above 
exemplified  has  the  support  of  authority  and  is,  as  I  think,  based 
upon  good  reason  and  sound  policy.  The  principle  is  not  that  the 
right  of  substitution  arises  where  the  underwriter  pays  loss  on  a 
policy  of  insurance  effected  by  a  mortgagee  upon  the  mortgaged 


SUBROGATION.  573 

premises.  ■  The  insurance  contract  imports  no  such  equity  in  the 
insurer.  If  it  be  awarded  to  him,  it  is  entirely  in  virtue  of  sorae 
train  of  circumstances  that  render  the  claim  an  equitable  one. 

The  contract  with  Mrs.  Nelson  on  the  part  of  the  company  was 
an  indemnity  against  loss  in  the  destruction  of  the  buildings  for 
which  the  usual  premium  and  obligation  required  by  the  company 
for  such  insurance  was  demanded  and  received.  On  this  policy, 
unchanged  in  its  terms,  the  loss  was  paid.  Now,  the  respondent 
claims  a  different  status  from  that  assumed  in  its  contract,  and 
claims  its  liability  to  be  of  a  different  nature,  because  of  the  new 
attitude  which  the  insured  assumed  through  her  contract  to  sell. 
Yielding  that  to  the  respondent  certainly  it  must  take  its  new  posi- 
tion, not  upon  a  partial  view  or  selected  part  of  her  contract. 
When  it  puts  itself  on  her  agreement,  it  does  and  must  accept  it  as 
a  whole,  because  her  rights  under  that  agreement,  and  those  of  her 
vendees,  are  to  be  determined  on  the  entire  terms  ot  it.  Among 
these,  she  engaged  to  hold  her  policy  for  the  joint  protection  of 
herself  and  her  vendees,  and  the  latter  assumed  to  pay  all  subse- 
quent assessments  upon  it.  She  cannot,  under  her  contract  with 
him.,  refuse  to  allow  the  proceeds  of  the  insurance  to  reduce,  pro 
tanto,  her  claim  against  them,  and  her  rights  in  this  regard  are  the 
respondent's  rights. 

For  these  reasons  the  decree  below  should  be  reversed,  and  the 
bill  be  ordered  dismissed,  with  costs. 

Decree  unanimously  reversed. 


SUFFOLK  FIRE  INSURANCE  CO.  and  Another  v.  BOYDEN. 

9  Allen,  123.  —  1864. 

Bill  in  Equity  setting  forth  that  the  Suffolk  Fire  Insurance 
Company  and  the  Dorchester  Fire  Insurance  Company  insured  a 
building  and  the  machinery  in  it,  situated  in  Worcester,  from  May 
ist,  1863  to  May  ist,  1864;  that  the  premiums  were  paid  by  the  defend- 
ant, who  was  the  mortgagee  in  possession,  and  so  described  in  the 
policies;  that  the  premises  insured  were  destroyed  by  fire  during 
the  continuance  of  said  policies;  that  the  plaintiffs  have  offered  to 
pay  said  loss  to  the  defendant,  and  also  the  amount  due  on  the 
mortgage  above  the  loss,  if  any,  and  have  requested  the  defendant 
upon  such  payment  to  assign  the  mortgage  to  them,  or  to  hold  the 
same  for  their  benefit,  which  he  has  refused  to  do.  The  prayer  of 
the  bill  was  for  an  answer,  an  account  of  the  rents  and  profiits  and 


574  SUBROGATION. 

the  loss,  that  a  trust  might  be  decreed  in  favor  of  the  plaintiffs  as 
to  said  mortgage,  that  they  might  be  subrogated  to  the  rights  and 
remedies  of  the  defendant  under  the  same,  for  an  assignment  and 
for  further  relief.  The  policies  were  annexed  to  the  bill,  and  each 
of  them  contained  the  following  provision:  "And  whenever  this 
company  shall  pay  any  loss,  the  assured  agrees  to  assign  over  all 
his  rights  to  recover  satisfaction  therefor  from  any  other  person  or 
persons,  town  or  other  corporations."  The  answer  of  the  defendant 
admitted  the  mortgage,  the  possession,  the  insurance  and  the  loss, 
as  stated  in  the  bill;  alleged,  with  other  facts  not  now  material,  that 
the  policies  were  made  for  his  benefit  as  mortgagee  and  not  for  the 
mortgagor;  that  his  loss,  and  also  the  amount  due  on  the  mortgage, 
exceeded  the  insurance,  and  denied  the  right  of  the  plaintiffs  to  an 
account  or  to  have  the  mortgage  assigned  to  them.  The  case  was 
heard  upon  the  bill  and  answer,  and  reserved  by  Chapman,  J.,  for 
the  consideration  of  the  whole  court. 

Hoar,  J.  — The  only  distinctions  that  are  suggested  between  the 
case  at  bar  and  King  v.  State  Ins.  Co.,  7  Cush.  i,  are  these:  i.  That 
this  is  a  suit  in  equity,  and  that  was  a  suit  at  law;  2.  That  here  the 
insurance  is  expressly  made  upon  the  interest  of  the  assured  as 
mortgagee,  while  there  it  was  upon  his  interest  in  the  property, 
which  was  only  that  of  a  mortgagee,  without  disclosing  its  precise 
character:  and  3.  That  the  decision  of  the  question  upon  which 
this  case  depends  was  not  necessary  to  the  judgment  rendered  in 
the  other. 

We  do  not  think  it  expedient  or  desirable  to  revise  the  case  of 
King  V.  State  Ins.  Co.,  or  to  restate  the  argument  so  fully  presented 
by  the  late  chief  justice  in  giving  the  opinion  of  the  court.  That 
case  was  very  fully  considered;  and  although  it  has  been  subjected 
to  some  adverse  criticism,  we  find  no  reason  for  dissatisfaction  with 
its  principles  or  conclusions.  On  the  contrary,  the  objections  which 
have  been  urged  against  it  seem  to  us  to  rest  upon  misapprehen- 
sion, and  we  think  that  the  doctrines  there  stated  are  and  ought  to 
be  the  settled  law  of  this  commonwealth.' 

It  was  decided  upon  the  ground  that  an  insurance  by  a  mortgagee 
of  his  interest  in  the  mortgaged  property  is  not  an  insurance  of  the 
debt,  although  the  amount  of  the  debt  is  the  measure  of  his  insur- 
able interest  in  the  property.  There  is  no  privity  of  contract 
between  the  insurer  and  the  mortgagor,  but  each  has  a  contract 
with  the  mortgagee  separate  and  independent  from  the  other.     The 

'  The  present  opinion  gives  ihe  salient  points  of  Chief  Justice  Shaw's  opinion 
in  K'ino  v.  Ins.  Co.,  7  Cush.  i. 


SUBROGATION.  575 

mortgagee  cannot  charge  to  the  mortgagor  the  premiums  which  he 
pavs  for  insurance;  and  it  is  conceded  that,  e  converso,  the  mort- 
gagor can  derive  no  benefit  from  the  insurance  in  case  of  loss. 
White  V.  Brown^  2  Cush.  416.  But  why  should  not  the  mortgagor 
have  the  benefit  of  the  insurance?  The  equitable  argument  in  his 
favor  would  seem  to  be  at  least  as  strong  as  that  in  favor  of  allow- 
ing the  insurer  the  advantage  of  a  subrogation  of  the  debt.  The 
whole  interest  of  the  mortgagee  in  the  property,  in  its  inception, 
and  while  it  continues,  is  only  for  the  purpose  of  indemnity.  He 
takes  it  as  a  security  from  which  he  may  recover  what  is  due  to 
him,  if  the  debt  is  not  paid.  If  the  insurer  pays  a  loss  by  fire, 
equal  to  the  whole  debt,  the  mortgagee  receives,  through  his  title 
to  the  property  held  as  a  security,  the  amount  of  his  debt,  excepting 
only  the  premium  paid,  which  may  be  a  very  trifling  proportion  of 
it.  The  mortgagor  has  lost  the  same  amount.  Why  should  not  the 
mortgagor  pay  the  premium,  and  be  entitled  to  treat  the  debt  as 
cancelled?  The  sufficient  answer  is,  because  the  insurance  is  a  wholly 
collateral  contract,  which  the  law  allows  the  mortgagee  to  make, 
and  with  the  result  of  which  the  mortgagor  has  no  concern.  The 
whole  consideration  proceeds  from  the  mortgagee.  If  there  is  no 
loss  by  fire,  he  loses  the  whole  amount  of  premiums  paid,  without 
any  claim  upon  the  mortgagor  for  compensation.  The  premiums 
paid  are  intended  to  be  a  just  equivalent  for  the  sum  to  be  received 
on  the  happening  of  the  contingent  event.  The  larger  sum  to  be 
received  if  the  event  happens,  is  fixed  in  a  just  proportion  to  the 
chances  that  it  will  not  happen,  and  that  the  premium  will  have 
been  paid  without  any  return.  It  would  be  manifestly  unjust  that 
the  mortgagor  should  have  the  advantage  of  an  indemnity,  when  he 
has  borne  no  part  of  the  expense  of  obtaining  it. 

On  the  other  hand,  the  insurer  has  received  a  full  equivalent  for 
the  loss  which  he  is  called  on  to  pay.  Why  should  he  receive  his 
premium,  and  subject  the  mortgagee  to  the  loss  of  it  if  no  fire 
occurs,  giving  him  no  corresponding  advantage  in  case  a  fire  hap- 
pens? The  debt,  as  between  the  insurer  and  the  mortgagee,  is  as 
purely  a  collateral  contract  as  is  the  insurance  when  considered  in 
relation  to  the  mortgagee  and  mortgagor.  It  is  urged  that  insur- 
ance is  a  contract  of  indemnity.  But  what  is  an  indemnity  must  be 
determined  by  a  correct  application  of  the  word  to  the  subject 
matter.  The  insurance  is  against  a  loss  by  fire  of  property  in  which 
the  insured  has,  at  the  time  of  the  insurance  and  at  the  time  the 
loss  happens,  an  insurable  interest.  If  the  insurer  pays  no  more 
than  the  value  of  the  property  destroyed,  no  more  than  the  sum 
insured  upon  it,  and  no  more  than  the  interest  of  the  insured  at  the 


$y6  SUBROGATION. 

time  of  the  loss,  he  pays  no  more  than  an  indemnity  under  his  con- 
tract. That  the  loss  may,  by  means  of  other  contracts  of  a  col- 
lateral character,  or  indirectly,  give  the  insured  an  advantage,  is  of 
no  consequence.  Could  there  be  a  more  exact  indemnity  in  any 
case  of  loss  by  fire,  than  if  the  insurer  should  replace  the  property 
burned,  when  its  value  does  not  exceed  the  sum  insured,  nor  the 
insurable  interest  of  the  holder  of  the  policy?  Yet  what  claim 
would  the  insurer  who  should  rebuild  have  to  an  assignment  to  him 
of  the  mortgage  d.ebt?  Again,  there  are  incidents  to  a  mortgagee's 
estate,  which  may  give  him,  as  the  proceeds  of  his  mortgage,  a 
larger  value  than  his  mere  debt.  He  may  foreclose  his  mortgage, 
and  thus  acquire  an  absolute  title  to  property  of  a  far  greater  value 
than  the  amount  due  him. 

But,  without  extending  the  discussion,  it  is  sufficient  to  say,  that 
the  doctrine  which  we  now  reaffirm  was  one  of  the  grounds  u[)on 
which  the  decision  in  A7//i,'-  v.  S/iife  Ins.  Co.  was  expressly  made  to 
rest;  that  the  conclusion,  that  the  insurer  has  no  interest  in  the 
mortgage  debt,  is  as  decisive  against  his  claim  in  equity  as  at  law; 
and  that  if  the  title  of  the  insured  was  that  of  a  mortgagee,  it  is 
immaterial  whether  it  was  insured  eo  nomine  or  otherwise.  The 
agreement  in  the  policies,  that  in  case  of  the  payment  of  a  loss  the 
insured  will  assign  to  the  insurers  "  all  his  rights  to  recover  satis- 
faction therefor  from  any  other  person  or  corporation,"  does  not 
affect  this  case,  because  the  mortgage  debt  is  not  in  any  sense  a 
right  to  recover  satisfaction  for  the  loss  by  fire. 

Bill  dismissed  with  costs. 


Bradley,  J.,  ix  INSURANCE  CO.  v.  STINSON. 

103  U.  S.  25,  26.  —  1880. 

This  was  an  action  on  a  i)olicy  of  insurance  against  loss  or  dam- 
age by  fire.  Stinson,  the  plaintiff  below,  had  a  contract  to  build  a 
hotel,  to  be  called  the  Webster  House,  at  Marshfield,  Plymouth 
County,  Massachusetts,  for  the  sum  of  $25,000,  and  had  nearly  com- 
pleted it;  but,  failing  to  get  his  payments  from  the  owner,  he  stopped 
work  and  took  the  necessary  steps  for  securing  a  mechanic's  lien  on 
the  building.  For  this  purpose  he  filed  the  required  statement  with 
the  town  clerk,  and  commenced  an  action  to  enforce  his  lien  within 
the  period  prescribed  by  law.  Whilst  that  action  was  pending,  in 
July,  1875,  he  procured  the  policy  in  question  from  ihe  plaintiffs  in 
error,  the  defendants  below,  insuring  him  for  three  months  against 


SUBROGATION.  577 

loss  or  damage  by  fire  to  the  amount  of  $5,000  on  the  building  — 
the  policy  stating  his  interest  to  be  that  of  contractor  and  builder. 
The  loss  occurred  during  the  continuance  of  the  policy,  and  due 
notice  was  given.  After  the  fire  the  plaintiff  did  not  further  prose- 
cute his  action  to  enforce  the  lien,  but  commenced  the  present  action 
for  the  amount  of  his  insurance.  When  the  building  contract  was 
entered  into,  and  until  the  loss  occurred,  the  property  on  which  the 
building  was  erected  was  subject  to  a  mortgage  for  a  debt  of  $17,000, 
being  the  purchase-money  which  the  owner  had  agreed  to  pay  to  the 
former  owner,  and  which  is  conceded  to  have  been  a  lien  on  the 
whole  property  prior  to  that  of  the  plaintiff.  Two  defenses  were 
made  by  the  insurance  company  to  the  action:  First,  the  failure  of 
the  plaintiff  to  prosecute  his  suit  for  enforcing  his  lien.  *  *  *' 
The  court  overruled  these  defenses,  and  charged  the  jury  substan- 
tially as  follows,  namely:  That  if  the  plaintiff  had  a  valid  builder's 
lien  when  the  policy  was  effected,  which  could  have  been  enforced 
by  the  decree  of  the  appropriate  court  against  the  equity  of  redemp- 
tion of  the  property,  and  if  it  was  a  valid  and  subsisting-  lien  at  the 
time  of  the  loss,  it  was  immaterial  whether  he  did  or  did  not  subse- 
quently perform  those  acts,  the  non-performance  of  which  as  con- 
ditions subsequent  might  have  dissolved  the  lien.  *  *  *  To  this 
charge  and  to  the  refusal  to  give  instructions  to  the  contrary  the 
defendants  took  a  bill  of  exceptions. 

We  think  that  the  instructions  were  correct.  As  to  the  first  point, 
based  on  the  abandonment  by  the  plaintiff,  after  the  destruction  of 
the  building,  of  the  proceedings  to  enforce  his  lien,  it  is  apparent 
from  the  evidence  adduced  by  the  defendants  themselves  that  it 
could  not  have  injured  them.  But,  aside  from  this  consideration,  if 
the  plaintiff  had  an  insurable  interest  at  the  time  of  issuing  the 
policy  and  at  the  time  of  the  loss,  equal  to  the  amount  insured,  he 
had  a  complete  and  absolute  cause  of  action  against  the  defendants; 
and  it  was  no  concern  of  theirs  whether  he  farther  prosecuted  his 
lien  or  not,  unless  they  desired  to  be  subrogated  to  his  rights  and 
gave  him  notice  to  that  effect.  Whether,  if  they  had  done  this,  and 
had  offered  to  indemnify  him  against  all  costs  and  expenses,  a 
refusal  on  his  part  to  continue  the  proceedings  would  have  been  a 
defense  to  this  action,  it  is  unnecessary  to  inquire.  No  such  course 
was  taken  by  the  defendants.  We  may  remark,  however,  that  where 
a  creditor  effects  insurance  on  property  mortgaged  or  pledged  to 
him  as  security  for  the  payment  of  his  debt,  the  insurers  do  not 
become  sureties  of  the  debt,  nor  do  they  acquire  all  the  rights  of 

'  The  omiiled  oarrs  of  the  opinion  deal  with  insurable  interest. 

LAW  OF  INbUKA.NCF.  —  ^7 


5/8  SUBROGATION. 

such  sureties.  They  are  insurers  of  the  particular  property  only, 
and  so  long  as  that  property  is  liable  for  the  debt,  so  long  its 
destruction  by  fire  would  be  a  loss  to  the  creditor  within  the  terms 
of  the  policy.  A  surety  of  the  debt  might  complain  if  the  creditor 
should  surrender  to  the  debtor  collateral  securities;  but  an  insurer 
of  property  for  the  benefit  of  the  mortgagee  would  have  no  just 
ground  of  complaint.  True,  after  a  loss  has  occurred  and  the  insur- 
ance has  been  paid,  sufficient  to  discharge  the  debt,  the  insurers 
may  be  entitled  to  be  subrogated  to  the  rights  of  the  creditor  against 
the  debtor,  and  to  any  collateral  securities  which  the  creditor  may 
then  hold  and  which  are  primarily  liable  for  the  debt  before  the 
insurers.  But  even  then  we  do  not  think  that  the  creditor  is  bound 
to  take  any  active  steps  to  realize  the  fruits  of  a  collateral,  or  to 
keep  it  from  expiring,  unless  the  insurance  be  first  paid  and  notice 
be  given  to  him  of  a  desire  on  the  part  of  the  insurers  to  be  subro- 
gated to  his  rights,  with  a  tender  of  indemnity  against  expenses. 
We  are  aware  that  views  somewhat  differing  from  these  have  been 
held  by  respectable  authority,  but  we  think  without  any  sound  rea- 
son. See  May  on  Insurance,  §  457;  Insurance  Company  v.  Woodruff, 
2  Dutch.  (N.  J.)  541.  To  impose  such  restrictions  and  obligations 
upon  the  creditor  would  be  to  add  to  the  contract  of  insurance  con- 
ditions cever  contemplated  by  the  parties  making  of  it  a  mere 
shadow  of  security,  and  increasing  the  avenues  of  escape  from  obli- 
gation to  pay,  already  too  numerous  and  oppressive.  When  a  build- 
ing is  insured  in  the  interest  of  a  mortgagee,  the  insurance  company 
does  not  inquire  what  other  collaterals  he  holds,  and  never  reduces 
its  premium  on  any  such  consideration. 


PHENIX  INSURANCE  CO.  v.  FIRST  NATIONAL  BANK. 

85  Va.  765.—  1889. 

Appeal  from  decree  of  the  Circuit  Court  of  Rockingham  County. 
rendered  June  30th,  1887,  in  the  chancery  cause  therein  pending,  in 
which  the  Phenix  Insurance  Company  of  New  York,  the  Fire  Asso- 
ciation of  Philadelphia,  and  the  Hope  Insurance  Company  of  New 
Orleans  were  complainants,  and  the  First  National  Bank  of  Har- 
risonburg,Virginia,  was  defendant. 

A  corporation,  styled  the  New  Rawley  Springs  Company,  issued 
its  bonds  to  the  amount  of  ^30,000,  dated  July  12th,  1879,  with 
coupons  for  semi-annual  interest,  and  executed  a  trust  deed  to  secure 
payment   thereof.     These   bonds,  to   the   amount   of  $7,187,   were, 


SUBROGATION.  579 

on  the  loth  of  August,  1885,  owned  by  the  defendant  bank,  and  that 
day  the  bank  obtained  from  the  Phenix  Insurance  Company  a  policy 
of  insurance  against  loss  by  fire  to  the  amount  of  $1,000  for  the 
term  of  one  year,  on  part  of  the  buildmgs  and  furniture  embraced 
in  the  trust  deed.  The  policy  was  issued  in  the  name  of  the  Springs 
Company,  though  the  bank  paid  the  premium,  the  loss,  if  any,  being 
payable  to  the  bank  as  its  interest  might  appear.  On  the  7th  of 
June,  1886,  the  items  of  property,  covered  by  the  policy,  were 
destroyed  by  fire,  the  loss  aggregating  $700,  which  was  paid  and  the 
policy  surrendered.  The  bank  also  took  out  additional  policies  in 
the  Virginia  Fire  and  Marine  Insurance  Company  for  $2,750;  in  the 
Hope  Insurance  Company  of  New  Orleans  for  $1,500,  and  in  the 
Fire  Association  of  Philadelphia  for  $1,750,  making  a  total  insurance 
of  $7,000  to  protect  the  bonds.  The  losses  under  the  several  poli- 
cies were:  Phenix,  $700;  Fire  Association,  $1,375;  Hope,  $1,050; 
and  Virginia  Fire  and  Marine,  $2,375,  aggregating  $5,500.  When 
the  Phenix  Insurance  Company  paid  the  bank  the  amount  of  the 
loss  under  its  policy,  it  demanded  of  the  bank  $700  of  said  bonds, 
claiming  that  it  stood  in  the  relation  of  surety,  and  that  having  paid 
$700  of  the  debt  of  the  Springs  Company  represented  by  the  bonds, 
it  had  become  entitled,  on  the  principle  of  subrogation,  to  bonds  to 
that  amount.  This  claim  being  denied  by  the  bank,  the  Phenix 
Insurance  Company  filed  its  bill  for  relief.  The  bank  demurred  to 
and  answered  the  bill,  denying  the  complainant's  demand.  Then 
the  Fire  Association  and  the  Hope  Insurance  Company,  by  leave  of 
the  court,  filed  their  petition  to  the  same  effect.  These  two  com- 
panies had  not  paid  the  losses  under  their  policies,  declining  to  do 
so  until  the  bonds  they  claimed  were  turned  over  to  them. 

The  court  decreed  that  the  complainants  were  not  entitled  to 
demand  and  take  of  the  bank  the  bonds,  or  any  of  them,  until  the 
bank  had  received  the  full  amount  of  the  principal  and  interest  of 
its  debt;  but  that  the  insurance  companies  which  have  or  shall  have 
paid  the  bank  the  amount  of  adjusted  loss  due  from  them  respec- 
tively were  entitled  in  equitable  proportions  to  such  surplus  of  the 
dividends  applicable  to  said  bonds  owned  by  the  bank  as  may  arise 
upon  the  foreclosure  of  the  trust  deed  and  remain  after  the  payment 
of  principal  and  interest  of  said  bonds  to  the  bank,  and  that  the 
prayer  of  the  complainants  be  denied,  and  that  the  right  of  the  bank 
to  hold  and  collect  the  bonds  was  firm  and  stable.  From  this  decree 
the  Phenix  Insurance  Company  and  the  other  complainants  appealed 
to  this  court. 

Richardson,  J. — We  have  had  no  hesitancy  in  coming  to  the 
conclusion  that  the  decree  complained   of  is  without  error,  either 


580  SUBROGATION. 

o.i  principle  or  authority.  The  case  involves  only  one  single  ques- 
tion: Does  an  insurer,  who  has  paid  a  loss  to  a  mortgagee  that 
covers  only  a  part  of  the  mortgage  debt,  acquire  as  against  the 
mo.'tgagee  a  right  to  demand  aud  take  from  the  mortgagee  the 
evidences  of  the  debt  secured  to  the  amount  of  the  loss  paid  by  the 
insurer,  whether  the  mortgagee  be  able  or  not  to  obtain  satisfaction 
of  his  debt  from  the  remaining  evidences  of  the  debt?  Or,  in  other 
words,  must  not  the  creditor's  debt  be  paid  in  full  before  the  insurer 
can  take  from  him  by  subrogation  any  part  of  that  debt? 

The  doctrine  which  is  applicable  to  this  case,  and  which  squarely 
meets  this  question,  is  clearly  laid  down  by  Mr.  Justice  Story  in 
pronouncing  the  opinion  of  the  Supreme  Court  of  the  United  States 
in  Carpenter  v.  The  Providence  Washington  Insurance  Co.,  i6th  Peters, 
501,  where  the  learned  judge  says:  "  No  doubt  can  exist  that  the 
mortgagor  and  the  mortgagee  may  each  separately  insure  his  own 
distinct  interest  in  the  property.  But  there  is  this  important  dis- 
tinction between  the  cases,  that  where  the  mortgagee  insures  solely 
on  his  own  account  it  is  but  an  insurance  on  his  debt;  and  if  his 
debt  is  afterwards  paid  or  extinguished,  the  policy  ceases  from  that 
time  to  have  any  operation;  and  even  if  the  premises  insured  are 
subsequently  destroyed  by  fire,  he  has  no  right  to  recover  for  the 
loss,  for  he  sustams  no  damage  thereby;  neicher  can  the  mortgagor 
take  advantage  of  the  policy,  for  he  has  no  interest  whatever 
therein.  On  the  other  hand,  if  the  premises  are  destroyed  by  fire 
before  any  payment  or  extinguishment  of  the  mortgage,  the  under- 
writers are  bound  to  pay  the  amount  of  the  debt  to  the  mortgagee,  if  it 
does  not  exceed  the  insurance.  But  then  upon  such  payment  the 
underwriters  are  entitled  to  an  assignment  of  the  debt  from  the 
mortgagee,  and  may  recover  the  same  amount  from  the  mortgagor, 
either  at  law  or  in  equity,  according  to  circumstances."  And  in 
Insurance  Co.  v.  Stinson,  103  U.  S.  25,  Mr.  Justice  Bradley  con- 
cludes the  opinion  with  the  remark:  'After  a  loss  has  occurred 
and  the  insurance  has  been  paid  sufficient  to  discharge  the  debt,  the 
insurer  may  be  subrogated  to  the  rights  of  the  creditor  against  the 
debtor."  In  a  note  to  King  v.  State  M.  Fire  Insurance  Co.,  54  Am, 
Dec.  696,  the  learned  annotator  says:  "  The  doctrine  of  the  princi- 
pal case  that  the  insurer  is  not  entitled  to  demand  subrogation  under 
a  policy  which  does  not  expressly  provide  for  it  is  the  established 
law  in  Massachusetts,  *  *  *  and  that  doctrine  seems  to  be 
adopted  in  May  on  Ins.,  §  456;  Wood  on  Fire  Ins.,  782,  and  in 
later  editions  of  Mr.  Phillips'  work.  2  Phil,  on  Ins.,  §  1712.  But 
it  must  be  admitted  that  the  decided  preponderance  of  authority  is 
against  this  doctrine  and  in  favor  of  the  insurer's  right  of  subroga- 


SUBROGATION.  58I 

tion  and  assignment  in  such  cases  upon  paying  the  loss,  and^  if  neces- 
sary^ the  balance  due  on  the  mortgage.'"  Citing  Flanders  on  Ins.,  400; 
16  Peters,  495,  and  numerous  other  authorities. 

The  authorities  demonstrate  the  correctness  of  the  decree  appealed 
from,  and  we  are  therefore  of  opinion  that  the  same  must  be 
affirmed. 

Decree  affirmed. 


6.  Procedure. 

Lord,  J.,  in  HOME  MUT.  INS.  CO.  v.  OREGON  R'Y  &  NAV.  CO. 
20  Ore.  569,  573.  —  1891. 

Where  the  insurance  company  has  paid  the  owner  for  the  destruc- 
tion of  his  property  by  fire  occasioned  by  the  fault  of  a  railroad  com- 
pany and  afterwards  the  owner  receives  the  amount  from  the  company 
in  satisfaction  of  his  damages,  he  holds  it  in  trust  for  the  insurance 
company,  and  it  may  recover  it  from  him  by  a  suit  in  equity.  So, 
too,  if  the  railroad  company  has  not  paid  the  owner  his  damages  for 
the  loss,  or  has  paid  it  to  him,  knowing  that  he  had  received  the 
amount  of  the  insurance  from  the  insurance  company,  the  railroad 
company  is  liable  to  the  insurance  company  in  an  action  at  law, 
which  it  has  a  right  to  bring  in  the  name  of  the  owner,  without  his 
consent,  to  repay  it  the  damages  to  the  amount  of  the  sum  paid  by 
it,  and  that  a  release  from  the  owner  would  be  no  defense  to  such 
an  action.  Monmouth^  etc  ,  Ins.  Co.  v.  Hutchinson,  etc.,  Transp.  Co., 
21  N.  J.  Eq.  108.  The  subrogation  of  the  insurer  to  the  remedies 
of  the  insured  for  the  destruction  of  the  insured  property  upon  the 
payment  of  the  loss  operates  as  an  equitable  assignment  to  the 
insurer  to  the  extent  of  the  amount  paid.  "  It  is  in  the  nature," 
said  Shaw,  C.  J.,  "  of  an  equitable  assignment,  which  authorizes  the 
assignee  to  sue  in  the  name  of  the  assignor  for  his  own  benefit." 
Hartv.  Railroad  Corp.,  supra  [13  Met.  99]. 

It  results,  then,  that  the  right,  resting  on  the  doctrine  of  subroga- 
tion and  not  depending  upon  contract  or  privity,  must  be  worked 
out  through  the  right  of  the  insured  or  the  owner  of  the  property 
destroyed;  that  the  remedy  must  be  prosecuted  in  his  name,  unless 
the  Code  of  Procedure,  which  permits  an  action  to  be  brought  in  the 
name  of  the  real  party  in  interest,  has  changed  this  rule.  The  case  of 
Connecticut  Fire  Ins.  Co.  v.  Erie  Ry.  Co.,  73  N  Y.  399,  is  relied  upon  to 
support  this  position.  But  in  that  case  the  owner  had  fully  settled 
his  claim  against  the  railroad  company,  but  the  contract  showed  that 


582  SUBROGATION. 

the  amount  of  the  policy  was  deducted  from  the  amount  of  the  loss 
in  the  settlement,  so  that  the  insurance  company  was  the  only 
remaining  party  in  interest.  The  action  being  under  the  code  of 
that  State,  which  requires  the  action  to  be  brought  in  the  name  of 
the  real  party  in  interest,  by  this  settlement,  the  owner  having  no 
interest,  it  was  held  that  the  insurance  company  might  properly 
bring  the  action.  In  .Etna  Ins.  Co.  v.  Hannibal.,  etc.,  Ry.  Co..,  3 
Dill.  I,  it  was  held  by  Dillon,  J.,  that,  in  a  case  where  the  property 
destroyed  exceeded  in  value  the  amount  insured,  the  rule  of  law  had 
long  been  settled  that  the  insurance  company,  on  payment  of 
the  loss,  cannot  sue  the  wrongdoer  in  its  own  name,  saying:  "The 
suit,  though  for  the  use  of  the  insurer,  must  be  in  the  name  of  the 
person  whose  property  was  destroyed.  The  wrongful  act  was  single 
and  indivisible,  and  gave  rise  to  but  one  liability.  If  one  insurer 
may  sue,  then,  if  there  are  a  dozen,  each  may  sue,  and,  if  the 
aggregate  amount  of  all  the  policies  falls  short  of  the  actual 
loss,  the  ow'ner  could  sue  for  the  balance.  This  is  not  per- 
mitted, and  so  it  was  held  nearly  a  hundred  years  ago."  And 
again:  "  But  it  is  insisted  that  the  provisions  of  the  Missouri  statute 
that  every  action  shall  be  prosecuted  in  the  name  of  the  real  party 
in  interest,  though  it  declares  that  the  provision  shall  not  authorize 
the  assignment  of  a  thing  in  action  not  arising  out  of  contract, 
changes  the  rule  However  it  might  be  if  the  amount  paid  by  the 
insurer  to  the  assured  had  equaled  or  exceeded  the  value  of  the  prop- 
erty, and  the  assured  had  made  a  full  assignment,  it  is  plain  that 
this  case  falls  within  the  reasons  of  the  rule  itself  as  expounded  by 
Buller  and  Mansfield  in  the  Case  in  Douglas  \^Maso7i  v.  Sainsbury,  3 
Doug.  53],  above  cited,  and  which  is  the  foundation  of  the  law  on 
this  subject." 

In  Mari7ie  Ins.  Co  v.  St.  Louis,  etc.,  Ry.  Co.,  41  Fed.  Rep.  644,  it 
was  held,  under  the  Arkansas  statute  providing  that  "  every  action 
must  be  prosecuted  in  the  name  of  the  real  party  in  interest,"  that 
an  insurance  company  which  has  paid  the  insured  the  full  value  of 
the  property  destroyed  may  maintain  an  action  in  its  own  name 
against  the  wrongdoer  causing  the  loss.  Caldwell,  J.,  said  :  "  Under 
the  reformed  Codes  of  Procedure,  the  action  of  the  insurance  com- 
pany, in  cases  of  this  sort,  may  be  brought  in  the  name  of  the 
insurer  [citing  Swart/iout  v.  Rai/icay  Co.,  49  Wis.  625,  6  N.  W.  Rep. 
314;  Connecticut  Fire  Ins.  Co.  v.  Erie  Ry.  Co.,  73  N.  Y.  399].  But, 
as  it  is  alleged  in  the  complaint  that  the  plaintiff  has  paid  the  insured 
the  full  value  of  the  property  destroyed,  it  is  plain  that  the  latter 
have  no  interest  in  the  present  controversy,  and  hence  they  are  not 
necessary   parties."     Thr    opinion   is,    however,    expressed    in   that 


SUBROGATION.  583 

case,  if  the  value  of  the  property  destroyed  exceeds  the  insurance 
money  paid,  that  the  insurer  might  join  or  be  joined  with  the  owner 
in  the  action  to  recover  for  its  loss,  and  would  not  be  required,  as 
held  by  Judge  Dillon,  siipra^  in  such  case,  to  prosecute  the  action 
in  the  name  of  the  insured.  A  like  view  was  sustained  in  Crandall 
V.  Tratisportation  Co.,  16  Fed.  Rep.  75,  where  Dyer,  J.,  held  that  in 
an  action  to  recover  the  value  of  a  building  destroyed  by  a  fire 
caused  by  the  alleged  negligence  of  the  defendant,  the  owner  of  the 
building  and  an  insurance  company  that  has  paid  the  amount  of 
the  insurance  of  such  building,  and  taken  an  assignment  of  the  claim 
from  the  owner  to  that  extent,  may  join  as  parties  to  the  action 
when  the  value  of  the  house  exceeds  the  amount  for  which  it  was 
insured.  In  Sivarthoiit  v.  Raihvay  Co..,  several  insurance  companies 
united  with  Swarthout,  to  whom  they  had  paid  the  amount  of  their 
policies  for  property  destroyed  by  the  negligence  of  the  defendant, 
in  an  action  to  recover  for  the  value  of  such  property.  The  defend- 
ant demurred  on  the  ground  that  the  plaintiffs  could  not  sue  in  one 
action,  but  each  must  sue  separately.  The  demurrer  was  overruled, 
and  the  correctness  of  this  ruling  was  the  subject  of  the  controversy. 
The  court  say:  "  It  is  said,  if  the  defendant  is  liable  at  all,  it  is 
separately  and  distinctly  liable  to  each  insurance  company  to  the 
amount  paid  on  its  policy.  But  it  seems  to  us  that  it  would  be  an 
intolerable  rule  to  allow  each  insurance  company  to  bring  a  separate 
suit.  The  railroad  company  might  well  say,  were  this  attempted: 
'  The  claim  is  indivisible.  There  is  but  one  wrongful  act  complained 
of,  one  loss,  and  one  liability.'  It  might  well  insist  that  the  whole 
matter  should  be  litigated  in  one  action.  And  what  objection  there 
can  be  to  allowing  the  owner  to  unite  with  the  insurance  companies 
in  bringing  one  action  to  determine  the  liability  of  the  defendant, 
we  fail  to  perceive.  Under  the  old  practice  the  action  would 
probably  have  been  brought  in  the  name  of  the  assured  for  the 
benefit  of  all  concerned;  but  the  Code  requires  the  action  to  be 
brought  in  the  name  of  the  real  party  in  interest.  Now,  it  appears 
that  Swarthout  has  made  an  assignment  in  writing  to  each  insurance 
company  of  a  part  of  his  claim  against  the  railroad  company  for  the 
alleged  wrongful  destruction  of  his  property.  It  is  obvious,  if  one 
of  the  insurance  companies  may  bring  a  separate  suit  for  the  amount 
of  its  claim,  each  may;  and,  as  the  aggregate  amount  of  the  policies 
falls  short  of  the  actual  loss,  Sv/arthout  may  sue  for  the  balance. 
As  we  have  said,  a  rule  of  law  which  would  allow  this  to  be  done 
would  operate  most  oppressively  upon  the  railroad  companies.  For 
a  single  wrongful  act,  which  gave  rise  to  bat  one  liability,  it  might 
be  harassed  with  a  dozen  different   actions."     In  a  later  case  (i'r(^// 


584  SUBROGATION. 

V.  Radford,  52  Wis.  118,  8  N.  W.  Rep.  606),  the  court,  after  citing 
the  section  of  their  statute  which  provides  that  "  every  action  must 
be  prosecuted  in  the  name  of  the  real  party  in  interest,"  and  the 
further  section,  that,  "  of  the  parties  to  the  action,  those  who  are 
united  in  interest  must  be  joined  as  plaintiffs  or  defendants;  but,  if 
the  consent  of  any  one  who  should  be  joined  as  plaintiff  cannot  be 
obtained,  he  may  be  made  a  defendant,  the  reason  thereof  being 
stated  in  the  complaint,"  says:  "  Under  the  statutes  above  cited  the 
insurance  companies  coj1.1  maintain  an  action  against  such  wrong- 
doer in  their  own  names,  or  be  joined  with  the  insured  as  plaintiff  in 
such  action.  *  *  *  Where  the  common  law  procedure  prevails, 
the  action  of  the  insurance  companies  would  necessarily  be  brought 
ii  the  name  of  the  insured.  It  could  be  so  brought  without  his 
consent,  and  he  would  have  no  control  over  it.  But  under  our  Code 
of  Procedure  the  companies  would  sue  in  their  own  names,  joining 
the  insured  as  plaintiff  or  making  him  defendant,  according  to  the 
exigencies  of  the  case." 

It  would  appear,  then,  from  these  last  cases,  that  where  the  prop- 
erty is  insured  for  less  than  its  value,  and  is  destroyed  by  the  negli- 
gence of  a  third  p.irty,  the  insurance  companies,  who  have  paid  the 
owner  the  insurance  money,  must  be  joined  with  him  in  an  action  to 
recover  damages  for  the  destruction  of  such  property,  and  that, 
upon  a  refusal  of  such  parties  to  join  as  plaintiffs,  they  must  be 
made  defendants,  The  action,  though,  would  be  brought  in  their 
own  name,  joining  the  insured  as  plaintiff  or  making  him  defendant, 
according  as  he  stood  related  to  the  facts.  From  all  this  the  con- 
clusion results  that,  where  the  wrongful  act  is  single  and  indivisible, 
there  can  be  but  O'nt  liability  or  cause  of  action.  Since  the  Code 
the  cause  of  action  remains  as  before,  single  and  indivisible;  and  the 
insurer  acquires  only  a  rig'it  or  interest  with  the  owner  of  the  prop- 
erty in  the  cause  of  action  or  liability,  an:l  not  a  new  and  separate 
cause  of  action.  Ha  cannot,  therefore,  sue  in  his  own  name  alone, 
in  any  case,  under  the  Code,  e.Kcept  where  the  amount  paid  by  him 
has  exceeded  or  equaled  the  value  of  the  property  destroyed,  and 
no  interest  remains  in  the  owner.  When  the  amount  of  the  insur- 
ance money  paid  is  less  than  the  value  of  the  property  destroyed  by 
the  negligent  act,  all  the  authorities  agree  that  the  insurer  must 
either  sue  in  the  name  of  the  insured  or  join  with  him  in  bringing  an 
action  against  the  wrongdoer.  None  allows  that  in  such  case  he  can 
sue  in  his  own  name  alone,  for  the  reason  that  the  wrongful  act  is 
single  and  indivisible,  and  gives  rise  to  but  one  liability  or  cause  of 
action.  In  that  cause  of  action  he  acquires  a  joint  ri^  ht  with  the 
owner  therein,   and  not  a  new  and   separate  right   of  action,  and 


SUBROGATION.  585 

therefore  must  prosecute  it  jointly  with  him.  They  have  a  joint 
interest  in  a  single  liability,  and,  united,  are  the  real  parties  in 
interest.  Now,  the  facts  disclosed  by  this  record  concede  that  the 
property  destroyed  by  the  wrongful  act  of  the  defendant  greatly 
exceeded  in  value  the  amount  of  the  insurance  money  paid  by  the 
plaintiff.  To  the  extent  of  that  payment  the  plaintiff  became  subro- 
gated to  the  right  of  the  owner  in  the  property,  but  the  cause  of 
action  remained  single  and  indivisible,  and  the  plaintiff  acquired 
only  a  joint  right  with  the  owner  therein,  and  not  a  new  and  inde- 
pendent right  of  action,  and  could  not,  therefore,  prosecute  the 
action  in  his  own  and  separate  right.  Yet  this  is  exactly  what  the 
plaintiff  has  done,  and  claims  it  has  a  right  to  do.  If  this  were  so, 
it  would  establish  an  intolerable  rule,  and  expose  the  defendant  to 
be  harassed  by  a  dozen  different  actions,  which  it  seems  to  us  would 
be  contrary  to  legal  principles,  and  be  productive  of  mischief  and 
oppression.  The  judgment  must  be  affirmed. 


b.  Life  and  Accident  Insurance. 

INSURANCE  CO.  ?'.  BRAME. 

95  U.  S.  754. —  1877. 

Action  by  the  Mobile  Life  Insurance  Company  against  Brame  to 
recover  $7,000.  The  plaintiff  had  insured  the  life  of  McLemore. 
Brame  wilfully  shot  and  killed  McLemore.  The  plaintiff  sues  Brame 
to  recover  as  damages  the  amount  of  the  policies,  which  amount  the 
plaintiff  acknowledges  to  be  due  and  a  part  of  which  has  been  paid. 
Judgment  for  defendant. 

Mr.  Justice  Hunt.  —  The  argument  of  the  insurance  company  is 
that  the  killing  of  the  deceased  was  an  injury  to  or  violation  of  a 
legal  right  or  interest  of  the  company;  that,  as  a  consequence 
thereof,  it  sustained  a  loss,  which  is  the  proximate  effect  of  the 
injury.  The  answer  of  the  defendant  is  founded  upon  the  theory 
that  the  loss  is  the  remote  and  indirect  result  merely  of  the  act 
charged,  that  at  the  common  law  no  civil  action  lies  for  an  injury 
which  results  in  the  death  of  the  party  injured,  and  that  the  stat- 
utes of  Louisiana  upon  that  subject  do  not  include  the  present  case. 
The  authorities  are  so  numerous  and  so  uniform  to  the  proposition 
that  by  the  common  law  no  civil  action  lies  for  an  injury  which 
results  in  death,  that  it  is  impossible  to  speak  of  it  as  a  propo- 
sition open   to  question.      It  has  been  decided  in  many  cases  in  the 


586  SUBROGATION. 

jLnglish  courts  and  in  many  of  the  State  courts,  and  no  deliberate, 
well-considered  decision  to  the  contrary  is  to  be  found.  In  Hilliard 
on  Torts,  p.  87,  sec.  10,  the  rule  is  thus  laid  down:  "  Upon  a  sim- 
ilar ground  it  has  been  held  that  at  common  law  the  death  of  a 
human  being,  though  clearly  involving  pecuniary  loss,  is  not  the 
ground  of  an  action  for  damages."  The  most  of  the  cases  upon 
the  subject  are  there  referred  to.  Baker  v.  Bolton  et  al.,  i  Camp. 
493;  Connecticut  Mutual  Life  Insurance  Co.  v.  New  York  &>  New 
Haven  Railroad  Co.,  25  Conn.  265;  Kramer  v.  Market  Street  Rail- 
road Co.,  25  Cal.  434;  Indianapolis,  Pittsburg  &'  Cleveland  Railroad 
Co.  V.  Kealey,  23  Ind.  133;  Hyatt  v.  Adams,  16  Mich.  180;  Shields  v. 
Yonge,  15  Ga.  349;  Peoria  Marine  c;^  Fire  Ins.  Co.  v.  Frost,  37  111.  333. 
The  only  cases  that  tend  to  the  contrary  of  this  rule,  so  far  as  we  know, 
are  Cross  v.  Gut/wry,  2  Root  (Conn.)  90,  Plummer  v.  Webb,  Ware,  69, 
and  Ford  v.  Monroe,  20  Wend.  (N.  Y.)  210.  They  are  considered 
by  the  New  York  Court  of  Appeals  in  Green  v.  The  Hudson  River 
Railroad  Co.,  2  Keyes  (N.  Y.)  294,  and  compared  with  the  many 
cases  to  the  contrary,  and  are  held  not  to  diminish  the  force  of  the 
rule  as  above  stated.  In  that  case,  the  plaintiff  alleged  that,  on  the 
ninth  day  of  January,  1856,  his  wife  was  a  passenger  on  the  defend- 
ant's road,  and  by  the  gross  carelessness  and  unskilfulness  of  the 
defendants  a  collision  occurred,  by  means  of  which  his  wife  was 
killed,  "  whereby  he  has  lost  and  been  deprived  of  all  the  comfort, 
benefit,  and  assistance  of  his  said  wife  in  his  domestic  affairs,  which 
he  might  and  otherwise  would  have  had,  to  his  damage,"  etc.  A 
demurrer  to  this  complaint,  upon  the  ground  that  the  facts  alleged 
constituted  no  cause  of  action,  was  sustained  by  the  New  York 
Court  of  Appeals.  In  Hubgh  v.  New  Orleans  &•  Carrollton  Railroad 
Co.,  6  La.  Ann.  495,  the  same  principle  was  decided,  and  in  the 
same  manner.  In  giving  its  opinion,  the  court  say:  "  The  excep- 
tion of  the  defendants  presents  the  question  whether  the  death  of 
a  human  being  can  be  the  ground  of  an  action  for  damages."  Not 
being  satisfied  with  this  decision,  Messrs.  Ogden  &  Duncan  asked 
for  a  rehearing,  the  argument  for  which  is  reported  in  the  same 
volume,  pp.  498-508.  It  was  denied  in  an  elaborate  opinion  deliv- 
ered by  Chief  Justice  Eustis.  In  Hermann  v.  Carrollton  Railroad 
Co.,  II  Id.  5,  this  principle  was  again  affirmed  in  an  opinion  by 
Chief  Justice  Merrick. 

It  is  only  necessary  to  refer  to  one  other  case,  involving  the  same 
principle  as  those  already  cited,  but  in  its  facts  more  closely  resemb- 
ling the  case  under  consideration.  In  Connecticut  Mutual  Life  Insur- 
ance Co.  v.  New  York  &' New  Haven  Railroad  Co.,  supra,  the  declara- 
tion alleged  that  on  the  twentieth  day  of  March,  1850,  the  plaintiffs 


SUBROGATION,  587 

had  outstanding  and  in  force  a  policy  of  insurance  for  $2,000  upon 
the  life  of  Samuel  Beach;  that  Beach  was  on  that  day  a  passenger  on 
the  defendants'  road;  that  the  defendants  so  carelessly,  negligently, 
and  unskilfully  conducted  themselves  that  the  train  on  which  Beach 
was  riding  was  thrown  down  a  bank  into  the  river;  that  Beach  was 
greatly  wounded  and  bruised,  by  means  whereof  he  then  and  there 
died,  by  reason  of  which  the  plaintiffs  were  compelled  to  pay  to  his 
administrators  the  sum  of  $2,000  upon  the  said  policy. 

The  allegation  of  the  present  plaintiffs  is  that  Brame  tortiously 
and  illegally  took  the  life  of  McLemore  by  shooting  him.  This  is 
open  to  the  inference  that  the  act  of  Brame  was  felonious.  The 
case  in  Connecticut  is  based  upon  the  allegation  of  negligence  and 
carelessness,  and  is  the  more  favorable  to  a  recovery,  in  that  it 
avoids  the  suggestion  existing  in  the  present  case,  that  the  civil 
injury  is  merged  in  the  felony.  The  Supreme  Court  of  Connecticut 
held  that  the  action  could  not  be  sustained.  We  have  cited  and 
given  references  to  the  important  cases  on  this  question;  they  are 
substantially  uniform  against  the  right  of  recovery. 

Upon  principle,  we  think,  no  other  conclusion  could  be  reached 
than  that  stated.  The  relation  between  the  insurance  company  and 
McLemore,  the  deceased,  was  created  by  a  contract  between  them, 
to  which  Brame  was  not  a  party.  The  injury  inflicted  by  him  was 
upon  McLemore,  against  his  personal  rights;  that  it  happened  to 
injure  the  plaintiff  was  an  incidental  circumstance,  a  remote  and 
indirect  result,  not  necessarily  or  legitimately  resulting  from  the  act 
of  killing.  As  in  Rockingham  Insurance  Co.  v.  Mosher,  39  Me.  253, 
where  an  insurance  company  brought  a  suit  against  one  who  had 
wilfully  fired  a  store  upon  which  it  had  a  policy  of  insurance,  which 
it  was  thereby  compelled  to  pay,  it  was  held  that  the  loss  was 
remote  and  indirect,  and  that  the  action  could  not  be  sustained.  In 
Ashley  et  al.  v.  Dixon,  48  N.  Y.  430,  it  was  held  that  if  A.  is  under  a 
contract  to  convey  his  land  to  B.,  and  C.  persuades  him  not  to  do 
so,  no  action  lies  by  B.  against  C.  So  a  witness  is  not  liable  for 
evidence  given  by  him  in  a  suit,  although  false,  by  which  another  is 
injured.  Grove  v.  Brandenburg,  7  Blackf.  (Ind.)  234;  Diinlap  v. 
Gledden,  31  Me.  435.  And  in  Anthony  v.  Slaid,  11  Mete.  (Mass.) 
290,  a  contractor  for  the  support  of  town  paupers  had  been  sub- 
jected to  extra  expense  in  consequence  of  personal  injury  inflicted 
upon  one  of  them;  and  he  brought  the  action  against  the  assailant 
to  recover  for  such  expenditure.  The  court  held  the  damage  to 
be  remote  and  indirect,  and  not  sustained  by  means  of  any  natural 
or  legal  relation  between  the  plaintiff  and  the  party  injured,  but 
simply  by  means  of  a  special  contract  between  the  plaintiff  and  the 


588  SUBROGATION. 

town.  Some  text-writers  are  referred  to  as  holding  a  different 
view,  but  we  are  not  cited  to  any  case  in  this  country  or  Great 
Britain  where  a  diff^^rent  doctrine  has  been  held. 

By  the  common  law,  actions  for  injuries  to  the  person  abate  by 
death,  and  cannot  be  revived  or  maintained  by  the  executor  or  the 
heir.  By  the  act  of  Parliament  of  Aug.  21,  1846,  9  &  10  Vict.,  an 
action  in  certain  cases  is  giv'en  to  the  representatives  of  the 
deceased.  This  principle,  in  various  forms  and  with  various  limita- 
ti  )ns,  has  been  incorporated  into  the  statutes  of  many  of  our 
Stites,  and  among  others  into  that  of  Louisiana.  It  is  there  given 
in  favor  of  the  minor  children  and  widow  of  the  deceased,  and,  in 
default  of  these  relatives,  in  favor  of  the  surviving  father  and 
mother.  Acts  of  La  ,  1855,  pr.  223,  p.  270.  The  case  of  a  creditor, 
mach  less  a  remote  claimant  like  the  plaintiff,  is  not  within  the 
statute.  Li  each  of  the  briefs  it  is  stated  that  the  defendant  was 
tried  for  the  homicide,  and  acquitted.  In  the  view  we  take  of  the 
case,  the  fact  of  a  trial  or  its  result  is  a  circumstance  quite  imma- 
terial to  the  present  question,  however  important  it  may  have  been 
to  the  defendant. 

Judgment  affirmed.' 

'  In  Harding  v.  To7un  of  To7vnshend,  43  V^t.  536,  which  was  an  action  for  dam- 
ages for  personal  injuries  occasioned  by  a  defective  highway,  the  defendant 
attempted  to  have  allowed  in  mitigation  of  damages,  the  amount  received  by 
the  plaintiff  upon  an  accident  polic}',  on  account  of  the  same  injuries.  The 
court  said:  "  If  there  is  any  such  connection  between  these  I  wo  remedies  as  to 
have  the  enforcement  of  one  operate  in  defense  or  mitigation  of  the  other,  it  is 
the  insurer  and  not  the  town  (hat  should  be  entitled  to  this  benefit.  It  would 
seem  to  be  a  perversion  of  justice,  to  subrogate  the  wrongdoer  who  has  caused 
the  loss,  to  the  rights  of  the  injured  party  as  to  his  remedy  against  the  insurer." 


INDEX, 


PACE. 

»ACB. 

Abandonment 

236 

Beneficiaries 

Accident  insurance 

fire  insurance 

236 

burden  of  proof 

315 

life  insurance 

359 

nature  of  contract 

15 

nature  of  interest 

362 

subrogation 

585 

who  may  be 

359 

terms 

270 

mutual  benefit  insurance 

381 

Accident,  what  is 

270 

right  to  sue 

380 

Action 

Binding  slip 

ICO 

limitation 

211 

Breach  of  contract  by  insurer 

410 

when  accrues 

314 

Broker 

500 

Adjuster 

501 

Burden  of  proof 

Age 

248 

accident  insurance 

315 

Agents 

46S 

representations  and  warranties 

124 

adjuster 

501 

broker 

500 

Carriers,  subrogation 

553 

concealment  by 

106 

Cause,  See  Proximate  Cause. 

duty  to  principal 

532 

Chattel  morlgage  as  incumbrance 

160 

for  insured  or  insurer           426 

5f7 

Collision 

231 

local 

468 

Concealment 

104 

scope  of  authority 

468 

Consideration 

Set^  also  Waiver  and  Estoppel. 

for  insurance 

92 

soliciting 

479 

for  waiver                        422,  445 

454 

sub-agents 

503 

Construction  of  contract 

131 

Alienation 

155 

Consummation  of  contract 

93 

Alterations 

173 

Contribution 

iy8 

Apportionment  of  loss 

205 

Corporations,  as  insurers 

31 

Arbitration 

194 

See  also  Stockholder. 

Assignment 

Creditor 

of  fire  policy  to  mortgagee 

396 

assignment  of  life  policy  to 

66 

of  fire  policy  to  purchaser 

389 

insurable  interest  in  life 

60 

of  life  policy 

402 

insurable  interest  in  property 

38 

of  life  policy  to  creditor 

66 

life     insurance     by    insolvent 

of  marine  policy 

401 

debtor 

375 

Attachment  of  risk,  marine 

217 

Crime,    death    or    accident    while 

Aunt  and  niece,  insurable  interest 

56 

committing 

301 

Average 

general 

232 

Damages,  for  breach  by  insurer 

414 

particular 

241 

Dangerous  articles 

162 

Bailee,  insurable  interest 

49 

Debtor,  See  Creditor. 

[5^ 

59] 

590 


INDEX. 


Delivery  of  policy,  See  Consumma- 
tion. 

Deviation  220 

Disability,  total  310 

Divisibility  of  loss  205 

Estoppel,  See  Waiver. 

Examination  of  insured  190 

Execution,  as  alienation  157 

Explosion,  loss  by  182 

E^cposure,  voluntary  284 

External  injury  277 

Falling  building  184 
Fidelity  insurance 

nature  16 

terms  323 
Fire  insurance 

assignment  389 

beneficiaries  336 

insurable  interest  38 

nature  i 

subrogation  536 

terms  142 

Foreclosure  proceedings  176 

Forfeiture,  waiver  of  417,  444 

See  also  NoN-FORFEiTURE  Clause. 

Form  of  contract  76 

Formation  of  contract  22 

Frauds,  statute  of  79 

Gas,  death  by  290 

General  agents  510 

General  average  232 
Guaranty  insurance 

nature  16 

terms  323 

Hazard,  increase  of  142 
Health  249 
Heredity  255 
Husband,  insurable  interest  in  prop- 
erty of  wife  46 

Illegal  insurance  126 

See  also  Violating  Law. 

Implied  terms  79 

Incontestability  59,  264 

Increase  of  hazard  142 

Incumbrances  158 


PAGE. 

Infants,  capacity 

23 

Inhaling  gas,  death  by 

290 

Injury,  external 

277 

Insanity  and  suicide 

26s 

Insurable  interest 

aunt  and  niece 

5& 

bailee 

49 

creditor 

38,  Co 

husband  in  wife's  property 

46 

in  life 

50 

in  life  of  another 

53 

in  one's  own  life 

50 

in  property 

38 

incontestable  policies 

59 

life  tenant 

44 

parent  and  child 

59 

partners 

60 

stockholder 

41 

relationship 

53 

uncle  and  nephew 

53 

Insurance,  nature  of 

r 

Interest,  change  of 

157 

Interstate  commerce,  insurance  as     39. 

Intoxicants 

295 

Iron-safe  clause 

192 

Judgment,  as  incumbrance 


158 


Lessor  and  lessee,  subrogation 

560 

Liability  fixed,  when 

314- 

Lienholder,  subrogation 

566 

Life  insurance 

assignment 

40» 

beneficiaries 

359 

nature  of 

7 

subrogation 

585 

terms 

27a 

Life  tenant,  insurable  interest 

44 

Lightning, loss  by 

184. 

Limitation  of  time  to  sue 

211 

Limits  of  contract 

336 

Local  agents 

468 

Location  of  property                   170 

176 

Magistrate's  certificate 

188 

Manufactory,  operation  of 

172 

Marine  insurance 

assignment 

401 

nature  of 

5 

terms 

217 

INDEX. 


591 


PAGE. 

Mechanic's  lien,  as  incumbrance 

160 

Medical  attendant 

254 

Memorandum  clause 

241 

Misrepresentation,    Sc-f   Represen- 

tations. 

Mistake 

126 

Mortgage,  as  alienation 

155 

Mortgagor  and  mortgagee 

insurance  lor 

349 

subrogation 

566 

Mutual  benefit  insurance 

beneficiaries 

381 

nature  of 

13 

terms 

318 

Nature  of  insurance 

I 

Negligence,  fire  by 

181 

Nephew  and  uncle,  insurable 

inter- 

est 

53 

Niece  and  aunt,  insurable  interest 

56 

Non-forfeiture  clause 

268 

Non-occupancy,  See  Occupancy. 
Notary's  certificate 


18S 


Occupancy 

165 

Occupation,  life  and  accident  insur- 

ance 

299 

Oral  contract 

76 

Oral  waiver 

512 

Other  insurance 

fire 

146 

life 

108 

Over-exertion 

294 

Over-valuation 

150 

Ownership 

152 

Parent  and  child. 

insura 

ble  interest 

59 

Parol  evidence  ru 

le  and 

waiver  424, 

437 

See  also  Promissory  Representa- 
tions. 

Particular  average  241 

Parties  to  the  contract  22 

See  also  Limits  of  Contract. 

Partner,  insurable  interest  in  life  60 

Physician  254 

Poison,  death  by  287 

Premiums  135 

waiver  of  492 

Premium  notes  140 

Prohibited  articles  162 


Promissory  representations  118,  442 

Proof,  See  Burden  ok  Proof. 

Proofs  of  loss  185 

waiver                               459,  463,  501 

Pro-rating  ig8 

Proximate  cause 

accident  insurance  282 

fire  insurance  170 

marine  insurance  231 


Reality  of  consent 

104 

Re-building  by  insurer 

203 

Re-insurance 

71 

Relationship,  insurable  interest 

53 

Remedies  for  insurer's  breach 

410 

Removal  for  safely,  loss  by 

184 

Representations  and  warranties 

108 

burden  of  proof 

124 

effect  of  misrepresentation 

123 

promissory  representations 

118 

statutes 

120 

Residence  and  travel 

25b 

Retaliatory  legislation 

39 

Risk,  increase  of 

142 

Safe  clause 

n2 

Seaworthiness 

221 

Soliciting  agent 

479 

Standard  policy 

construction 

133 

oral  waiver 

518 

terms  implied  in  oral  contract 

Sr 

State  control  of  insurance 

31 

Statute  of  frauds 

79 

Statutes 

agents 

531 

incontestability 

268 

non-forfeiture 

269 

representations  and  warranties 

J  20 

valued  policies 

2og 

Stockholder,  insurable  interest 

41 

Sub-agents 

503 

Subrogation 

536 

accident  insurance 

585 

carriers 

553 

fire  insurance 

536 

lessor  and  lessee 

560 

lienholder 

566 

life  insurance 

585 

mortgagor  and  mortgagee 

566 

p  i-ty  r'^'n"'  iff 

5?i 

592 


INDEX. 


Subrogation,  continued. 

tort  550 

i-endor  and  vendee  536 

Sue  and  labor  clause  245 

Suicide,  deaih  by  25S 

as  violation  of  law  306 

Termination  of  marine  risk  219 

Terms  of  insurance  contract  135 

accident  insurance  270 
fidelity  and  guaranty  insurance  323 

implied  79 

life  insurance  248 

marine  insurance  217 

mutual  benefit  insurance  318 
Tiile,  change  of 

See  Alienation,  Incumbrance. 

Title  guaranty  insurance  329 

Tort,  subrogation  550 

Total  disability  310 

Total  loss  236 

Travel  25b 

Uncle  and  nephew,  insurable  interest 

53 


Violating  law,  death  or  accident 

while  301 

\'alued  policies  207 

Vendor  and  vendee 

as  owners  152 

insurance  for  344 

subrogation  536 

Void  or  voidable  for  forfeiture  419 

Voluntary  exposure  284 

Waiver  and  estoppel  417 

after  forfeiture  444 

after  policy  issued  but  before 

forfeiture  443 

before  policy  issued  423 

consideration  for  422,  445,  454 

oral  512 

parol  evidence  rule  424,  437 

when  question  for  jury  463 

what  constitutes  420.  421,  459 

Waiver  of  proofs  of  loss  463 

Warranties,    see   Representations 

AND  Warranties. 
Wife,  life  insurance  for  375 

Written  contract  76 

Wrongdoer,  subrogation  550 


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